Section 1031 tax-deferred exchanges allow an individual to exchange one investment property for another investment property, subject to meeting specific requirements.
There is currently no limit on the amount of gain that can be deferred under a valid Section 1031 tax-deferred exchange. President Biden is proposing an annual limit of $500,000 for a single individual and $1,000,000 for a married couple on the gain that can be deferred under Section 1031. If a person or married couple exceeds these limits, they will have to report the excess capital gain on their tax return, where all the capital gain that did not qualify for Section 1031 deferral would be taxed at their ordinary income tax rates.
Depending upon the amount of gain, this could have significant tax consequences for taxpayers nationwide. This is only one of many proposals that the Biden administration is considering in order to raise taxes to cover all the recent government spending. Various lobbying groups are opposed to these limitations, and we will just have to wait and see what, if anything, gets approved by Congress.
In the meantime, JRG Attorneys at Law can help you with Section 1031 exchanges and other important financial transactions.