This tax change would reshape the entire real estate industry
President Biden’s new tax proposal is making waves:
- A new income tax rate of 39.6% for the top 1% of the workforce
- A new tax rate for investment income of 39.6% for the top 0.3% of taxpayers ($ 1 million + annual income)
- An increase in IRS audits for those earning more than $ 400,000
But another change would completely remodel real estate …
The tax loophole in question is known as “1031 Exchanges”.
As the Wall Street Journal explains, this portion of the Tax Code has been in existence since 1921 and allows investors to defer taxes on property profits as long as the proceeds are invested in other properties within 6 months.
In theory, property taxes could be deferred indefinitely. The majority of the 1031 exchanges are conducted by wealthy individuals who often pool funds to buy residential or commercial property.
How much is it worth
Congress estimates the void would save real estate investors $ 41 billion + between 2020 and 2024.
The Biden proposal would eliminate 1031 exchanges
Proponents of tax legislation say deferred taxes are a source of funding for job creation and investment in local communities.
Organizations that represent farms and Asian-American hotel owners are campaigning for Biden’s tax change, among other things, according to the WSJ.
It’s too early to say how much of these tax proposals will become a reality – but investors of all kinds are bracing themselves for big changes.