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Dan Gauthier, Rose Law Group transactional attorney, on the uncertain future of 1031 exchanges

By Paul Getty | Wealth Management

With the recent change of administrations earlier this year, real estate investors and landlords are on high alert for policy changes that could impact their assets.

Of particular interest is the 1031 exchange, which is once again up on the chopping block. 1031 exchanges have been around for one hundred years and have undergone many changes over that time, including attempts by politicians on both sides of the aisle to not only weaken investor benefits but to seek their outright appeal.

Shortly after the adoption of the first U.S. income tax in 1918, Congress deemed it unfair to tax businesses and individuals who sell properties and reinvest the proceeds rather than spend them. The prevailing view, which has persisted over the next century, was that if a taxpayer receives nothing in the transaction to pay taxes on (funds are transferred to the new property rather than spent), no tax should be owed.

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“The future of the 1031 exchange remains uncertain under the Biden administration. What is certain is 1031 exchanges have suffered from an optics problem. 1031 exchanges are a part of the broad topic of “tax reform,” though it is important to note several studies have found these tax-deferred exchanges to be revenue positive for the federal government, and repealing the 1031 exchange would have a detrimental effect on the economy by discouraging investment and the transfer of real estate.”

Dan Gauthier, Rose Law Group Attorney