Biden Releases FY2024 Budget
March 10, 2023
President Biden released his FY2024 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 2023 budget.
The FY2024 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 more than $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 FY2024 proposal would be effective for exchanges completed in taxable years beginning after December 31, 2023.
The administration published that capping 1031 at $500,000 would raise $1.86 billion per year. We have presented and continue to present our elected policymakers with the Ernst & Young study which concluded that the direct and indirect economic activity generated from Like-Kind Exchange transactions generates in excess of 10 times the amount of federal, state, and local taxes that the proposed cap is estimated to raise.
Employees of IPX1031 in conjunction with our trade association, the Federation of Exchange Accommodators (FEA), have built a strong defense with the 1031 real estate coalition, updated economic studies, hosted multiple congressional fundraisers, and attended numerous meetings with congressional staff to educate members of Congress. We will continue to fight for Section 1031 but we need your assistance. Elected officials listen more closely to their constituents! Below are some things you can do to help with the Section 1031 advocacy efforts:
Send a letter to Congress. An UPDATED grassroots letter is available for you to send to your members of Congress urging them to preserve Section 1031 in full. You can access the letter on IPX1031’s website or at www.ipx1031.com/action
Talk with your contacts about preserving Section 1031. Below are the comments the FEA is sharing with members of Congress about the proposed cap. Please feel free to use them in your comments with colleagues and friends.
Section 1031 is an important tool used by business owners, farmers and ranchers, middle-class taxpayers, and others to transition into locations that more efficiently meet their needs, instead of being tax-locked into obsolete assets.
The proposed cap on Like-Kind Exchanges at $500,000 is misguided because larger investors are critical to repurposing and renovating commercial real estate in our post-pandemic economy. The COVID-19 pandemic imposed unexpected and unprecedented trauma on commercial property – particularly retail, hotel and office space. A significant percentage of these properties need to be repurposed.
These are the types of large-scale projects that revitalize entire neighborhoods, generate significant job growth, and result in widespread community improvement. Section 1031 is an effective tool to encourage this activity while avoiding market disruptions. Allowing businesses to continue to utilize Section 1031 prevents many assets from becoming shuttered blight.
Additionally, recent economic impact studies concluded that Like-Kind Exchanges are a powerful stimulant of transactional activity that, in addition to the benefits described above, generates significant local and Federal tax revenue and contributes to the health of the U.S. economy. The studies found that exchanging buyers make real estate investments that are substantially greater than non-exchanging buyers, resulting in improved communities in which to live, work and play. These studies quantified that limiting or repealing Section1031 would cause significant economic contraction and job loss.
Most importantly, under Section 1031, taxes are merely deferred, not eliminated!
Thank you for your help in IPX1031’s advocacy efforts. We will keep you updated with additional information as it becomes available.