1031 Exchange Change Proposed

In 1921, under President Woodrow Wilson, the 1031 Tax Exchange option came into effect. Real estate owners who owned property that was increasing in value were hesitant to sell their property due to the taxes they would incur on the profit of their property sale.  This resulted in a low-activity and depressed real estate market.

To encourage the buying and selling of rental real estate, the federal government established the 1031 Tax Exchange, which allowed real estate owners to avoid capital gains tax as long as they were reinvesting the full amount of their profit upon selling into another property.

Though there are many rules regarding how to take advantage of this benefit, the 1031 Tax Exchange has continued to promote real estate transactions. (For questions in regard to this process, please reach out to Genuine Property Management as would be happy to provide guidance in regard to the 1031 Tax Exchange.)

There are two potential proposed changes coming from the Biden administration which would change the rules of the 1031 Tax Exchange.

Profit capped at $500,000
The Biden administration is considering capping the profit upon which you can avoid capital gains tax. If signed into law, any profit over $500,000 would be subject to capital gain tax

Abolishment of the 1031 Tax Exchange
Some within the Biden administration believe the 1031 Tax Exchange should be done away with all-together. Grace Property Management believes this would cause great damage to the rental real estate world by discouraging real estate transactions.