Joe Biden plans to abolish the right to defer taxes on property gains over $500,000. How will this affect real estate investors?

President Joe Biden has released a plan for higher real estate taxes to help fund American Families Plan. The $1.8 trillion plan will go towards child care, paid family leave, and expanding access to education. 

The presidential administration is asking to increase taxes on real estate transactions of over $500,000. Currently, the 1031 Exchange rules allow investors to exchange one investment property for another and defer paying capital gains taxes within 180 days of sale. As a result, investors only pay a limited tax or no tax at all.

As of now, there is no limit to how frequently you can do 1031 exchanges. Moreover, if an investor holds a property until death, it will pass to their heirs tax-free.

Biden’s proposal aims to limit the deferral of capital gains to $500,000 per year for individual investors and $1,000,000 per year for married couples. The expectation was that 1031 exchanges will be completely banned, so it’s a more moderate proposition, favoring the industry.

Resources:

“FACT SHEET: The American Families Plan,” (White House, 2021)

“What’s in Biden’s Spending Plan: Free Preschool and National Paid Leave,” by Annie Karni (The New York Times, 2021)

“How Biden’s real estate tax plan may hit smaller property investors,” by Kate Dore (CNBC, 2021)

“Impact of Biden’s Tax Reform on the Real Estate Industry,” by Emma Ewing, Robert Cole (ksm, 2021)

“Real Estate Tax Reform: The Potential Impact Of A Capital Gains Tax Hike,” by Adam Kaufman (Forbes, 2021)

“How Biden’s Tax Plan Could Affect Your Real Estate Investments,” by Dwight Kay (Kiplinger, 2021)

“1031 Exchange Rules: What You Need to Know,” by Robert W. Wood (Investopedia, 2021)