Death of the 1031 Tax Deferred Exchange?
By David Larson
The 1031 tax deferment laws have been a great way to amass wealth. Just as important, in my mind, is the ability to change asset classes in real estate from management intensive properties to less management intensive properties as an investor ages, without paying capital gains tax. In researching the subject of changes to the 1031 rules the only guidelines to the change I have found has been President Biden’s outline of excluding gains above $500,000 from being exempt. To come into effect this change would further need to be codified and then ratified. Excuse me if I seem a little cynical here but it seems to me that our tax laws have been written by the wealthy to benefit the wealthy. When Warren Buffet pays less in taxes as a percentage of his income than his housekeeper, we have a systemic problem. To put myself out on a limb my prediction is the 1031 code will not change dramatically from its current form. My predictions in the past have been wrong many times, on this one I hope I am right. One point I believe in my favor of limited change is our current political system. Unfortunately, money is especially important in a campaign for a politician getting elected. Large donors to a campaign tend to be high wealth individuals. Large wealth individuals tend to own investment real estate and would not benefit from changes in the current 1031 code.
As of right now the 1031 codes allow investors to easily exchange properties without the burden of paying Capital Gains tax. My prediction of minor changes to the code may or may not come true. To be safe if you have considered exchanging properties to a property with limited management responsibilities now may be the time. If selling your existing property and exchanging for a property with income but no management has been on your mind give us a call for a consultation.
The Reno apartment market in one word; NUTS! Cash from California and as far east as New York has been heating up the market. We have listed several multifamily properties lately and have had multiple offers on them prior to even finishing our market materials. We do not know what tomorrow brings but right now we are enjoying the wave of buyers.