With all the uncertainties that Covid has brought amongst us, one thing that is certain
is the downward spiraling effects of Biden’s proposal to cut 1031 exchanges. The Internal Revenue Code section 1031 allows real estate investors to avoid paying capital gains taxes when they sell a property and reinvest those proceeds in a different property or properties of qualifying like-kind exchange. With the new Biden plan, those transactions are set to be eliminated. Increasing taxes on long-term capital gains tax from 20% to a whopping 39.6%, almost double. However, these new taxes will be benefiting the American Families plan, which aims to help with the cost of care for children under 13 or a dependent with disabilities. Although the new bill is set to help the lower and middle class, it is a huge blow to small-time real estate investors who make up most of the demographic. After a devastating year for real estate investors, many rushed to find newer, safer, and more profitable properties. In hopes to make a deal before the new plan was in action at the end of 2020, some fell short and had to pay the 39.6% while others barely skated by.
Matsuda, Akiko. “Biden Proposal to ELIMINATE 1031 Exchange Spurs Investment.” The Real Deal New York, 30 Apr. 2021, therealdeal.com/2021/05/03/bidens-proposal-to-cut-1031-exchanges-may-be-tremendous-blow-to-real-estate-experts/.