The Proposed Elimination of the Section 1031 Exchange
According to Congress’ Joint Committee on Taxation, Section 1031 exchanges are expected to save real estate investors approximately $51 billion between 2019 and 2023. Considering this projection, it should come as little to no surprise that President-Elect Joseph Biden is rumored to be targeting the Section 1031 exchange.
Under Section 1031, no gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment. The Tax Cuts and Jobs Act of 2017 refined the definition of real property to eliminate personal property from like-kind exchanges.
The proposed elimination of the Section 1031 exchange would be a great way to reduce the Federal deficit, which ballooned to a whopping $3.1 trillion in 2020, and to fund President-Elect Joseph Biden’s proposed agenda.
And while the elimination of the Section 1031 exchange has been a frequent political talking point over the past couple of years, it is not solely a Democrat-talking point. Republicans in the House of Representatives last proposed the elimination of the Section 1031 exchange in 2017.
Source: Bloomberg Tax, Congressional Budget Office
- Carey M. Heyman, CPA
- Managing Principal of Industry - Real Estate
- CliftonLarsonAllen LLP
- Century City (Los Angeles)
Carey is the Managing Principal of the Real Estate Industry at CLA. He is a trusted advisor with close to 20 years of experience providing accounting, assurance, tax, and consulting services to real estate industry owners, operators, family offices, developers and syndicators. Carey has a strong track record of helping clients build and retain capital by leveraging tax- and cost-saving strategies and employing tax credits and incentives. He also consults with high net worth individuals, large family groups, and owners of closely-held businesses on all aspects of tax planning, estate planning, and retirement planning.
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