When President Joseph Biden took office earlier this year, many real estate investors went on high alert for policy changes that could affect their assets, noted a WealthManagement article Friday. One of the biggest concerns has been that the 1031 exchange once again may be on the chopping block.
The 1031 exchange allows senior housing and other real estate investors to defer capital gains taxes on property sales if the gains are reinvested in “like-kind” properties of equal or greater value.
Further, the ability to conduct a 1031 exchange and defer capital gains taxes long has been a part of many people’s retirement plans, so an elimination of the 1031 could greatly affect the ability of some older adults to enjoy retirement, as they would have less to invest, possibly affecting their lifestyle in the future.
Although raised as a possibility during Biden’s campaign for president, to date, modifying or repealing this popular tax deferral technique has not been part of any of the proposed tax reforms from the new administration. Yet with a potential $2 trillion infrastructure bill now being circulated, industry insiders are keeping a watch on like-kind exchanges as a potential funding mechanism for the measure, another WealthManagement article noted Monday.
It’s not the first time 1031 exchanges have come under scrutiny, but some experts say that eliminating them right now would further disrupt the commercial real estate industry at a time when it already faces unprecedented challenges from the COVID-19 pandemic.
“Given these factors, many commercial real estate executives remain hopeful that the Biden Administration will avoid making changes to 1031 exchanges and will look for other funding sources to pay for expanded services and infrastructure improvements,” the media outlet concluded.