The 1031 exchange is once again potentially on the chopping block, as the Biden Administration looks for ways to fund the American Families Plan. In this article, we are going to talk a little bit about the history of the 1031 exchange and why it’s important to preserve this important part of the internal revenue code.
Section 1031 Has Been Around for Nearly 100 Years
Getting back to the idea that simplification requires the elimination of 1031, it’s important to note that section 1031 and its predecessors have been in the tax code since 1921. It’s almost a hundred years old. There’s a reason that it survived as long as it has in the code because it fulfills an important function.
It says that as long as you have a continuation of investment into another like-kind property, the government is not going to punish you by making you recognize gains because you’re continuing your investment into another like-kind property. We want investors to be able to move their cash to where it’s needed in the economy because it benefits them, but more importantly it benefits the whole economy by creating jobs and increasing property values.
Preserving The 1031 Exchange
If we eliminate 1031, deals will stop happening. That will cause property values to decrease. When property values decrease, then you can’t even refinance out your equity and you’re locked into the property and unable to sell. Eliminating 1031 is not a good idea. We need to preserve 1031 even through the most comprehensive of tax reforms because it is a vital key to keeping property values up, stimulating the economy, and creating jobs.