Biden Releases FY2025 Budget Proposal
March 14, 2024
Consistent with its prior budget proposals, the Biden Administration has proposed capping the gain that can be deferred through a like kind exchange at $500,000 per taxpayer ($1,000,000 for a married couple filing jointly). In our opinion, a cap would be tantamount to a full repeal of the section. It would effectively eliminate tax deferred exchanges for farms, ranches, and commercial properties.
Since the tax revenue created by 1031 Exchange activity is roughly ten times greater than the projected revenue generated by capping it, a cap would adversely affect both the public and private sectors of this country. IPX1031 and our industry organization, the Federation of Exchange Accommodators expected this language to be in the 2025 Budget. Accordingly, we will continue our advocacy efforts to retain section 1031 and educating our elected officials about how beneficial like kind exchanges are to the US economy.
We will continue to provide periodic updates.
We will continue to fight for Section 1031, but we need your assistance. Elected officials listen more closely to their constituents! Below is something you can do to help with the Section 1031 advocacy efforts:
Talk with your contacts about preserving Section 1031. Below are the comments the FEA shared with members of Congress about Section 1031 and the cap proposed cap by President Biden (see our PDF). Please feel free to use them in your conversations with colleagues, friends, and representatives.
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 Section 1031 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.
READ MORE
Talking Points PDF (2024)
Why Like-Kind Exchanges in a Distressed RE Market Make a Difference PDF (2023)
Sustaining American Businesses During Economic Uncertainty brochure
Ernst & Young Study Summary (2022)
Ling and Petrova Study Summary (2021)
IPX1031 Tax Reform resources
Send a letter to Congress
