President Biden released his FY2023 budget this week, and it again proposes a cap on deferred gain from like-kind exchanges. This doesn’t represent a new threat to Section 1031. It is just a repeat of what was in the 2022 budget.
The FY2023 proposal would allow the deferral of gain up to an aggregate amount of $500,000 for each taxpayer ($1 million in the case of married individuals filing a joint return) each year for real property exchanges that are like-kind. Any gains from like-kind exchanges in excess of $500,000 (or $1 million in the case of married individuals filing a joint return) a year would be recognized by the taxpayer in the year the taxpayer transfers the real property subject to the exchange.
The FY2023 proposal would be effective for exchanges completed in taxable years beginning after December 31, 2022.
The administration published that capping 1031 at $500,000 would raise $1.95 billion per year. We have presented and continue to present our elected policy-makers with the Ernst & Young study which concluded that the direct and indirect economic activity generated from like-kind exchange transactions generates approximately 5 1/2 times the amount of federal tax that the proposed cap is estimated to raise.
We have done and will continue to do extensive education with members of Congress to provide the facts about the benefits of Section 1031 to our policy-makers.
IPX1031 Tax Reform resources