This week, President Biden released the official details of his nearly $2 trillion American Families Plan. To pay for the proposal, the plan includes a $500,000 cap on 1031 exchanges. As we’ve discussed before, getting rid of (or greatly restricting) the 1031 exchange would be detrimental to the real estate industry as well as the overall economy.
Section 1031 Encourages Real Estate Investment
The general purpose of section 1031 is to encourage real estate investment. As such it is a powerful vehicle by which to stimulate the economy. 1031 exchanges are not an unfair tax “loophole” as some have claimed. This provision has been a part of the tax code for 100 years and benefits a wide range of taxpayers – not just the top 1%. Many middle class taxpayers benefit from 1031 exchanges of farmland, small apartment buildings, and more. Indeed, 1031 exchanges are for everybody!
1031 exchanges facilitate investment in communities as well and help create an inventory of affordable housing for working families. Research has shown that 1031 buyers invest more capital in their replacement properties compared to non-1031 exchange buyers.
Like-Kind Exchanges Create & Sustain Jobs
1031 exchanges also create and sustain jobs. Here is a brief list of professions that depend on the 1031 exchange: contractors, skilled and unskilled blue-collar workers, lenders, real estate brokers, Qualified Intermediaries, title insurers, escrow companies, surveyors, appraisers, architects, landscapers, building material suppliers and more.
A recent study found that 1031 exchanges are expected to generate 568,000 jobs in 2021. That equates to $27.5 billion in labor income and $55.3 billion of value added to the economy. The current economic benefits of the 1031 exchange are far greater than any potential benefits that would arise from eliminating section 1031.
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.
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