The Fiscal Year (FY) 2024 budget proposal from President Biden’s administration includes changes to Section 1031 of the Internal Revenue Code, which governs like-kind exchanges. These changes, if implemented, could significantly impact real estate investors.
Under current regulations, Section 1031 allows investors to defer capital gains taxes by reinvesting proceeds from the sale of a property into a similar one. However, the proposed budget seeks to cap the tax deferral at $500,000 per taxpayer per year, essentially limiting the benefits for real estate investors.
Supporters of the proposal argue that it will generate additional revenue to fund infrastructure projects and social programs, while addressing perceived tax loopholes. Critics, however, contend that the change could deter investment, stifle economic growth, and undermine the real estate industry.
The proposed alterations to Section 1031 are not yet final, as the budget proposal must first pass through Congress. This process is expected to be contentious, with both supporters and opponents voicing their opinions.
In light of the potential changes, real estate investors should monitor the situation closely and consider seeking professional advice to understand the implications for their investments and tax strategies.
