President Biden’s FY 2024 budget proposal, released March 9, calls for “closing tax loopholes that overwhelmingly benefit the rich and the largest, most profitable corporations. This includes closing the so-called ‘like-kind exchange loophole’ that lets real estate investors defer tax indefinitely… to ensure that the ultrawealthy cannot use these incentives to amass tax free fortunes.” While the verbiage suggests a repeal, the proposal is technically a cap on the deferral of capital gains at $500,000. The effect of the proposal is the same—Section 1031 like-kind exchanges would not be available for many real estate transactions. Exchanges of property with gains above that amount would be taxed at normal capital gains rates. The proposal seeks to raise $19B in tax revenue over 10 years through the cap on 1031 deferral. In contrast, however, preservation of like-kind exchanges generated $13.1B in federal, state, and local tax revenue and contributed $97.4B in value-add to the national GDP in 2021 alone.
Please advocate for the preservation of Section 1031 and the role of Qualified Intermediaries by sending a letter to your Member of Congress through the Federation of Exchange Accommodator’s advocacy website at https://1031buildsamerica.org/take-action/. Please share it among your contacts as well.
Section 1031 provides the benefits of tax deferral to exchange taxpayers by reducing tax burden, motivating sellers to list property, allowing investors to manage their real estate portfolio, and helping businesses to adapt to a changing economic climate. Section 1031 like-kind exchanges also create numerous benefits for the local and national economies—communities benefit where properties have been exchanged. Section 1031 like-kind exchanges contribute to job growth, create significant tax revenue, generate greater investment in real estate, and contribute to solutions to the affordable housing crisis. Consequences of a repeal include higher rents and a “lock-in” effect, where the availability of real estate would plummet.
Several studies have quantified benefits from Section 1031, which anecdotes have illustrated over the 100-year history of 1031 exchanges. Learn more about the implications of 1031 exchanges on the economy at www.1031buildsamerica.org .
1031 CORP. participates in advocacy for 1031 exchanges and our clients by participating in government affairs work through the Federation of Exchange Accommodators (FEA), the National Association of REALTORS® (NAR), American Land Title Association (ALTA), American Farm Bureau, and dozens of other real estate-related trade associations. FEA is the national trade association for Qualified Intermediaries. 1031 CORP. Team members will visit with Members of Congress during FEA’s Capitol Hill advocacy visits in April.
Caps on Section 1031 have been part of previous in budget proposals, including under the Biden and Obama administrations. During the leadup to the 2017 Tax Cuts and Jobs Act, legislators proposed a full repeal of Section 1031, resulting in restriction of like-kind treatment to real property and the elimination of treatment for personal property.
Legislators are free to propose amendments to the administration’s FY 2024 budget. A final vote on the budget is expected in the Fall of 2023. You can send a letter in support of 1031 exchanges through the FEA’s advocacy site at https://1031buildsamerica.org/take-action/ .