Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Wednesday, July 21, 2021

Are 1031 Exchanges Right for Me?

Wealth taxAccording to Casey Robinson, CFP: "[t]here’s a possibility the tax-deferral benefit of such property exchanges could end for some high-net-worth real estate investors, so that could speed up some property owners’ decisions."

President Biden has proposed a plan called the American Families Plan, which is exposing a popular tax deferral strategy used by property owners and real estate investors. President Biden's proposed spending package would eliminate the strategy in certain cases. 

A 1031 exchange (named for Section 1031 of the tax code) allows someone to defer paying capital gains on real estate profits if the proceeds are reinvested in another similar property of equal or greater value within a certain time limit. Biden's proposal would end the exchanges on real estate profits of more than $500,000 for singles taxpayers and $1 million for married taxpayers. 

While some see the 1031 strategy as a loophole used by investors, others argue that the repeated use of the strategy "contributes to an active real estate market and, therefore stimulates the economy." 

Although 1031 exchanges seem appealing, it is important to consider that they are only tax deferral strategies, meaning the tax on capital gains must be paid eventually. Thus, 1031 exchanges save investors in the short term. 

It is also important to note that 1031 exchanges have different benefits for investors who deal in multimillion-dollar transactions than they do for someone who owns a handful of smaller properties. For the high-end investors, 1031 exchanges may be more useful for them given the resources they have available. On the other hand, owners of smaller properties will have more "hurdles involved" lie fees, rigid regulations, and other things. 

See Casey Robinson, CFP, Are 1031 Exchanges Right for Me?, Kiplinger, July 18, 2021. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.


Estate Administration, Estate Planning - Generally, Estate Tax | Permalink


if you exchange one property for another for another and you are still holding property with deferred gain at death, it is not true that the gains tax must eventually be paid

Posted by: Russ Willis | Jul 23, 2021 2:20:23 PM

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