Biden Economic Plan Targets 1031 Exchanges

April 29, 2021

Tax breaks for 1031 like-kind exchanges would be capped under a wide-ranging economic plan proposed by President Biden.

On Wednesday, Biden introduced the $1.8 trillion American Families Plan. The package would include:

  • Two years of free community college, universal preschool and child-care assistance
  • National paid family and medical leave
  • Expanded nutrition assistance
  • Extended child, earned income and dependent care tax credits

To pay for the package, Biden would end the real estate tax break when investors exchange property for gains above $500,000.

In March, ALTA joined 30 other organizations in letters to Congressional leaders and U.S. Secretary of the Treasury Janet Yellen explaining the importance of 1031 like-kind exchanges.

The letter outlines how 1031 exchanges support jobs and investment, healthy real estate markets, and important social and environmental objectives, such as the preservation of family-owned farms and ranches and the conservation of land for the benefit of the public and future generations. Like-kind exchanges under section 1031 of the tax code allow businesses to grow organically, with less unsustainable debt, by reinvesting gains on a tax-deferred basis in new and productive assets. In this way, like-kind exchanges create a ladder of economic opportunity for minority-, veteran- and women-owned businesses and cash-poor entrepreneurs that may lack access to traditional sources of financing.

“Following years of careful legislating and regulatory rulemaking, section 1031 supports job growth, creates a ladder of economic opportunity for small businesses, cash-poor entrepreneurs, and farm, ranch, and forest owners, and constitutes an important tool for the environmental conservation of land for future generations,” the letter said. “For these reasons, like-kind exchanges will have an important role in the economic recovery and beyond.”

The letter also outlines how like-kind exchanges help support 568,000 jobs generating and $27.5 billion of labor income. Research at the University of Florida and Syracuse University, as well as macroeconomic modeling by Treasury’s former top tax economist, has found that 1031 exchanges spur capital expenditures, increase investment, create jobs for skilled tradesmen and others, reduce unnecessary economic risk, lower rents, support property values, and generate substantial state and local tax revenue. Roughly 40 percent of like-kind exchanges involve rental housing. ALTA and the other groups signed onto the letter believe 1031s are an important source of capital for affordable and workforce housing. Investors can use section 1031 to acquire land for the development of new housing. New limits on like-kind exchanges would increase the cost of rental housing, according to the letter.

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