Joe Biden Vs 1031 Exchanges
Former Vice President Joe Biden has proposed a new tax plan as part of his economic plan. With very few details, his "economic plan" has produced a proposal to abolish property tax relief.
Joe Biden's plan to end the tax breaks on real estate became a "Joe Biden economic plan," but he went a step further when he proposed funding a spending platform for children and the elderly by closing loopholes used by real estate investors.
Details of Biden's tax plan are sparse, however, and he has not proposed the wealth tax system that the Sanders and Warren campaigns championed during the primaries. Presumptive Democratic presidential candidate Joe Biden has promised to close tax loopholes to fund his economic plan. There have been previous efforts to eliminate 1031 exchanges, but some say his attacks on such exchanges are politically motivated, as President Trump has personally benefited from using them for his own business.
In particular, a senior campaign official said that a Biden administration would seek to end so-called "like-for-like" exchanges that allow investors to defer paying taxes on property sales until capital gains are reinvested in the property.
This new revenue stream would be one of the main reasons why a Biden administration would seek to eliminate the 1031 exchanges. In a related proposal for capital gains, Biden's tax plan also includes a 10 percent tax on income above $250,000 a year and a 5 percent capital gains tax. Biden also proposed to curtail the exchange's ability to defer taxes on property sales of more than $1 million in the first five years of a property's life. The Biden plan would also raise capital - capital gains taxes for high earners - and could eliminate 1031 exchanges, according to a senior campaign aide.
Joe Biden has proposed eliminating deductions for taxpayers making up to $400,000 a year.
As discussed earlier, the scope of the 1031 exchange programs under the Tax Cuts and Jobs Act of 2017 could be greatly reduced. Biden's plan would eliminate the deduction for real estate investors who earn more than $500,000 in annual income by using that income to fund child and elderly care. Rather than phasing out this deduction for high earners, Biden would maintain the tax deduction for income of individuals earning less than $100,000 a year, but propose making it available only to the top 1% of earners - those earning more than $400,000 a year - to roll back Trump-era tax cuts.
The idea has already been raised by Biden's campaign to change the tax treatment of such barter. This is another idea already raised by the Biden campaign, and is similar to the idea of an exchange program under the Tax Cuts and Jobs Act of 2017, but with a slightly different approach to changing the tax treatment for - for - similar exchanges.
That has caused controversy over such a plan, recently unveiled by a 2020 presidential candidate. The proposal would eliminate the tax treatment of all types of exchanges, including 1031 exchange programs that investors have used for decades to avoid capital gains taxes on property sales.
Business owners could use the money in a 1031 exchange program to put down a deposit on a better property.
Biden's plan would phase out 10 exchange programs for investors whose income exceeds $400K a year, Berger said. As the Wall Street Journal notes in its recent analysis of the potential impact of such a capital-gains tax change, its proposed changes could reduce transaction activity by linking losses on 1031 exchanges to the value of assets that investors would no longer retain, such as a house or car. But, as Berger noted, it could also weigh on operations and activities in other markets, as investors would no longer have to keep assets. And, as The Washington Post's David S. Berger and David J. Schoenfeld note, Biden's "proposed change in capital gains" could dampen trading activity, both in terms of the losses associated with the stock market and investors "ability to hold assets for longer.
A few weeks ago, former Vice President Joe Biden dropped his support for the 1031 exchange program. But the president's challenger has given him an insight into what he wants to do about it. Does he think he should maintain exchanges with Americans who want to build prosperity and secure their financial future?
Certain real estate investors, however, could see profits decline.
If the plan proposed by Democratic presidential candidate Joe Biden was implemented, the tax burden on the top 1% of earners in the US economy would increase by introducing a 1031 exchange, similar to that in New York City. Biden's proposal would address those concerns by allowing those who have heard about it to continue to exchange - for - some kind of money for those earning more than $400,000 a year. But he defended the 1031 swap, saying it allows companies - which are in crisis - to boost their business by temporarily deferring taxes on reinvested income. Biden wants to scrap the requirement that he pay income taxes on his income of more than $1 million a year.