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Are 1031s in Danger?

NEW YORK CITY—For decades, real estate investors have utilized the 1031 tax free exchange to reinvest sale proceeds for like-kind property, therefore deferring the capital gains tax due.

By James Nelson | Updated on April 02, 2014

NEW YORK CITY—For decades, real estate investors have utilized the 1031 tax free exchange to reinvest sale proceeds for like-kind property, therefore deferring the capital gains tax due. It has encouraged investors to increase their real estate holdings, as opposed to taking their chips off the table. This has bolstered the real estate industry and been a bastion for real estate brokers. A 1031 buyer is a motivated one, who must act on a limited time frame. However, if President Obama‘s 2015 budget proposal goes through, this could all soon change.

On March 4, the Treasury released their 297-page 2015 Federal Budget. Buried in it was a proposal to limit the amount of capital gains deferred to $1,000,000, which would be indexed for inflation. According to Forbes, this could account for an additional $18 billion in tax revenue over the next 10 years. What is not being considered is the tremendous potential loss of tax revenue from the additional investment, which is a result of the current IRS code. If enacted, the provision would be effective for like-kind exchanges completed after December 31, 2014

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