The 1031 exchange has been around since 1921 and has been through many overhauls of the tax code. Over the years, politicians from both parties have attempted to weaken or repeal this crucial part of the tax code. In this article, we will offer a brief history of the 1031 exchange and discuss why it’s important to keep it in the tax code.
A Brief History
In 1918, the United States adopted the first US income tax. Only a few years later, Congress recognized that individuals and businesses who reinvest the proceeds from a sale should not be taxed. In other words, if a taxpayer reinvests their funds to a new property rather than receiving those funds, they should not be taxed because they haven’t received anything. This mindset has persisted for nearly 100 years.
In 2017, the Tax Cuts and Jobs Act was passed. This bill partially weakened section 1031 by eliminating exchanges of personal property. Thankfully, the bill kept in tact exchanges of real estate.
Presidential Candidate Joe Biden’s proposal includes eliminating 1031 exchanges for investors who earn more than $400,000 per year. This would, in part, help fund his “Caring Economy” plan that will cost an estimated $775 billion over the next 10 years.
Today
Past efforts to repeal section 1031 of the Internal Revenue Code have failed. However, that doesn’t mean that 1031 exchanges are bulletproof. We live in uncertain times. COVID is devastating our economy and politicians are searching for all possible methods for funding programs to prop up the economy as we weather this storm.
However, eliminating section 1031 would not be the cure-all that many politicians make it out to be. 1031 exchanges help stimulate the economy by encouraging real estate investors to move capital around and reinvest their money. If you remove this provision, many investors are going to stop reinvesting, resulting in economic stagnation.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
© 2020 Copyright Jeffrey R. Peterson All Rights Reserved