For decades, some have argued for the repeal of section 1031 of the Internal Revenue Code. According to those who advocate for its repeal, by eliminating the tax deferral of section 1031, the coffers of the government will be increased dramatically because all of these sales will now become immediately taxable. But would this tactic actually work to raise taxable revenue?
The Reality of the Situation
The reality of the situation is that rather than selling properties in taxable transactions, most people will hunker down and simply refuse to sell their property if they have the immediate disincentive of taxation looming.
If the 1031 exchange is eliminated, the volume of sales will not continue at the same pace. The reality is if you don’t have a vehicle (such as a 1031 exchange) to defer gains people will simply not sell. As a result, there will be less revenue, less velocity in the marketplace, and less capital flowing where it needs to go in the economy.
Preserving the 1031 Exchange
If tax reform is needed and simplification is sought let’s keep this old code section that’s been around since 1921 that works great to organically grow and stimulate the economy. Keep the 1031 exchange, which serves a vital function both in the tax code and in the economy.
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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