Well, this seemed inevitable. I just saw that the president is talking about doing away with 1031 exchange benefits for properties over a certain range (a low range). Instead of going into detail, I'd advise looking it up. The article in the video I was watching looks like it was from the Bloomberg wealth site.

If you use 1031's it might be worth a look.

I also ask how long until lots more restrictions show up. The not having to pay rent is bad enough and is breaking many smaller landlords.

Abused to the point of tax evasion.

First, it is supposed to be a like-kind exchange.

Second, the proposed limit is 500K in gains.

Third, capital gains already have a lower rate than earned income.

I vaguely remember back in the day when they made sweeping overhauls to investment rentals. Biggest was depreciation, as I remember it (I was young but heard about it from my parents I guess.) It went from 15 years to 27.5 on residential rentals. People were ringing their hands and saying it would destroy the industry as we knew it. Maybe it did, but 30 years later or whenever, still here we are?

AHA! I knew it. It was called the Tax Reform Act of 1986 under Reagan, and apparently it decimated rental housing...(??)

Two useful resources to get educated:

Current law

www.irs.gov/pub/irs-news/fs-08-18.pdf

Proposed changes

www.bloomberg.com/news/articles/2021-04-28/1031-exchange-biden-pushes-to-end-real-estate-investment-tax-break

My take away is this will primarily affect mid to high end real estate investors and the businesses that thrive when properties are exchanged. If the changes go thru, it is more likely, especially with record low interest rates, that investors will refinance to pull out equity rather than sell and take a capital gains hit.

Take for example an apartment complex I looked at last year. 20 units. Sale price $1,000,000. The owner had it for 20+ years and wanted to sell to upgrade to a commercial property. We found that with using a 1031 he would be able to net enough to purchase up to a $5 million property. Under the proposed changes, it is unlikely he could have purchased as much, and if my math is correct he could actually just refinance out up to 80% LTV on the apartment plex and still get his property.

My first guess is that pattern, if perpetuated over the entire nation, would encourage larger property investors to keep and refinance currently owned RE rather than sell and take a hit from taxes, thus leading to further concentration/stagnation of property ownership among those who already own property. Paying record low interest rates will also look favorable vs. cashing out and paying taxes.

Sid's 2 cents.

One added tidbit of Sid-commentary:

Much of this debate is going to come down to there are Pros and Cons both ways, so the deciding factor will be what is your view of a person's income? Should people be entitled to the fruits of their labors--which include the risk/reward for making wise investment--or is income made to be "spread around" among everyone just for being alive?

I know which side I fall on. My strongly held belief is that people are entitled to the full benefit and use of their income, so long as it is obtain legally and ethically. Yes, two separate words for two separate concepts. Legality follows the law: period. Ethics follows, "How ought I treat my fellow man, regardless of what the law says?"

In my mind and personal life, ethics are left largely up to individual conscience. I am not a fan of RTO as it is traditionally practiced, for example. I think it places the Buyer at a significant and almost always insurmountable disadvantage to the Seller, as evidenced by the fact that few ( < 5%) of these transactions fail to close. But, I leave it up to individuals to decide for themselves if they are comfy entering into those kinds of transactions. They simply aren't for me. Ditto gambling. I think it's a foolish waste of money. Others see it as harmless entertainment. To each their own.

Ultimately, I believe ethics are guided by one's view of life, and I favor broad Liberty vs. coercive policy when determining ethics. Do no harm first, then do as much good as one is able and willing. One of my primary ethics is I will always work on being more willing and able to do more good. Thus, as my income increases, so does my ability and capacity to be generous toward others.

Therefore, I don't favor the 1031 being restricted or eliminated, regardless of how many "good causes" the projected revenues may support. Generosity isn't something you can mandate. Mandated redistribution is welfare, and to my observation most Govt welfare that does more harm than good on both the individual and societal levels.

Sid's 3rd cent.

One thing the 1031 does is it encourages housing providers to keep providing housing. If I owe a full tax load each and every time I sell,( and the capital gains on that has doubled, so it is a heavy tax load,) I might take the remaining money and buy another rental unit, or I might decide to put it in my pocket and not buy another rental unit.

It's all after tax money and it is the same amount, no matter what I decide to do with it. Maybe, I'll move it out of the country.

Also, basically the 1031 gives housing providers a bit if a screen against inflation. No matter how much prices have gone up, I have a three bedroom house and I can sell it for enough to buy a three bedroom house. The purchase power of the money is still worth the same as the value of a three bedroom house. Or, the government can take so much away that I can sell a three bedroom house and not have enough left to buy a one bedroom condo.

I see Robert mentioned Tax delay... my parents have done multiple 1031. My dad inherited 80 acre farm in 1969, been 1031 twice now. He has since passed, we now see his step up basis for his part in the partnership... To me, the lack of step up basis is going to hurt more so.

Good point, Oregon. Investments should be indexed for inflation; otherwise, you're being taxed on a gain that isn't really a gain. As you said, a sale might end up with you having LESS purchasing power in the same market.

Again, this would favor refinancing and pulling out equity vs. a sale.

Whine as you have in the past, but typically the trade up also results in paying more property tax.

Do you honestly think that deleting or reducing the 1031 exchange will hurt the savvy investor? Nope they will just place the property into a trust and transfer beneficial interest along with the subject to financing at a lower than market fixed rate to the buyer of that interest. Ohhh by the way - by doing it that way, the seller can get better Cap Rates.

I an sure though Jac, you are going to say a tool that was designed to keep government out of inheriting benefits the rich big track farmers who produce things cheaply for the consumers benefit. The bottom line, business professionals will always be on step ahead of the government as long as the government gives some type of notice.

JAC, do you appeal property taxes for a reduced rate (legal) or tattle on yourself every time you upgrade a property (stupid) so your tax assessment can increase? Not much different.

Perhaps Jac you should research DSTs

That is how those true class A New construction units are built. Perhaps your town is better without new homes being built?

A 1031 allows the person below you to also trade up. Now I understand you have a limited number of rentals. I don't know the value in YOU repressing someone trying to start out because YOU are jelli that someone has more assets than you.

Patience is a wonderful word that is until you are behind a car going really slow. Makes you want to honk your horn repeatedly and ride their bumper. But what happens if that driver is just 16 and is scared. There are absolutely two sides to every story.

I don't understand why you are not interested in growing your business in a legal manner that allows you improve your performance. Instead I will allow you to pay more tax than you have to in protest I would be more open minded about your opinion - IF you had actually completed a single 1031.

Not everyone can be like you. Some people actually operate a business. You seem to be in the LLing field because you like "people". Strange thing is not everyone is sharing your opinion - but thanks for sharing anyway.

Just the same, I have taught a couple dozen folks - including a few on this site how to pay less tax today so that they can increase the quality of life for their family. Doing so does require the buyer to typically take on more responsibility. That offer for free training is even open to you in hopes that you can grow from a couple of units to a half a dozen in this decade and a few dozen in 15 years.

JAC, I don't understand the eagerness to give even more tax dollars to the government to simply waste.

I remember when I moved there, crossing that bridge featured so prominently on TV literally pinching myself. But if you ever lived in DC you'd be appalled by watching it happen under your very eyes.