President Biden is at it again…this was attempted a couple of years ago but went no where. No it’s back again. The Biden Administration wants to see the 1031 Exchange loophole for the rich eliminated when they negotiate the 2024 budget with Congress.
Certainly rich people use 1031 Exchanges to defer taxes but it is also used by many others who would not consider themselves rich. It’s a highly popular tax strategy as you can imagine among real estate investors. I am not privy to their negotiations nor do I have an insider who might be representing the real estate industry onn this deal but it sure seems to me that Biden is throwing this out there to use as a negotiating tactic or bargaining chip for something else.
It seems difficult to believe they would just eliminate the 1031 Exchange. However, I could see they doing a phase out or a cap depending upon the amount of taxes deferred either per deal or cumulatively. If this ends up being the road this goes down, I’d like to see a counter balance be to extend 100% depreciation indefinitely instead of having bonus depreciation drop by 20% each year until it is zeroed out by 2027. Eliminating 1031s or putting some kind of cap in place would slow down some transaction activity I believe. A counter to that might be extending the 100% bonus depreciation ability. The bonus depreciation helps drive transactions as well. Transactions are good for the enconomy. We want to see more of them rather than fewer of them.
In the event someone reads this who has any influence on this, please remove the sunset provision in the current tax law and immediately bump bonus depreciation back to 100% and make it permanent with no sunset provision.