With Joe Biden now having taken over the Presidency, there’s been talk about whether or not he might move to eliminate the IRS Section 1031 tax-deferred exchange option for real estate investors.
In fact, during the runup to the November Presidential election, a Bloomberg article quoted a senior Biden campaign official as saying the following:
“A Biden Administration would take aim at so-called like-kind exchanges, which allow investors to defer paying taxes on the sale of real estate if the capital gains are reinvested in another property.”
This pretty much lays out what could become part of the overall game plan now that Biden has assumed the office of President, but the good news is that so far, there have been no direct moves towards eliminating the tax-deferred exchange by his Administration. However, let’s face it, it’s still very early within his four-year term.
As a way to raise more money for government spending, real estate investors could become an easy target for the public, because of the perception that investors are getting a free ride when deferring their taxes, that non-investors can’t get access to.
In addition to this, there are people on Wall Street who aren’t exactly thrilled with the idea that real estate investors can defer their capital gains taxes in a tax-deferred exchange, while people investing in stocks must pay taxes on their capital gains whenever they sell their stocks, without being able to participate in any kind of tax-deferred exchange.
So as we can see, there could quickly become a lot of support for eliminating the Section 1031 tax-deferred exchange, if the media and the politicians begin to focus on it. Then, at the same time, it is typical during the midterm Congressional elections, which will be held once again in 2022, for the Party that occupies the White House to lose seats in Congress to the opposing major political Party. So if Joe Biden intends to make a move against the 1031 exchange, he’d better do it within his first two years in office, because otherwise he just might not have the votes to make it happen.
With this in mind, this is something that we’ll all want to keep on our radar screens, and hope that the President decides that this is one important law that he’d just rather not tackle.
