Reader socalbuyer had to send in this article about the Republicans threatening to tinker with the 1031 tax-differed exchange benefits – but who knows what will happen. If they do eliminate the 1031s, the extra taxation on sales of investment properties would cause fewer people to sell.
Great – less inventory!
Excerpts:
House Republicans are working on a proposal that, as part of an overall streamlining of the Internal Revenue Code and a reduction in tax rates, may eliminate or seriously restrict the use of tax-deferred exchanges — property swaps — under Section 1031 of the code. President Trump has identified tax revision as one of his top priorities, and legislation is expected to move quickly in the new Congress.
Loss of the ability to use an exchange would be a significant blow to “Mom and Pop” and other small-scale realty investors. According to a study posted on the website of the National Rental Home Council, there were 15.7 million rental homes in the United States as of 2015, and 99 percent of them were owned by non-institutional investors. A study by professors at the University of Florida and Syracuse University estimated that most exchanges involve relatively small properties; in 2011, 59 percent had a sale price of less than $1 million.
Exchange proponents, such as Suzanne Baker of Investment Property Exchange Services in Chicago, argue that most of the deferred taxes ultimately are collected when properties get sold for cash and that exchanges stimulate economic activity — redevelopment and upgrades of properties, for example — that would not occur if owners faced immediate taxes on their gains and therefore simply sat on them.
Bottom line: If you own investment real estate and have contemplated a Section 1031 exchange, be aware: There’s a significant possibility that tax revisions could knock your plans off track. Keep a close eye on what’s happening, because it could happen fast.
That would affect me, but on the other hand, quite frankly, l’ve actually gotten a bit of “winning fatigue” lately. I’m not blaming our president. He did warn us.
Good gravy, can you believe this? Winning every flipping day!
Of course, since the Amateur-in-Chief is going to eliminate the tax on estates more than 10M, the strategy is just to hold till death, and pass it on to your heirs tax-free.
Real estate salespeople will get the business when heirs divest, just less flipping will occur…
Don’t feel sorry for me, I’ll sell ’em whenever they are ready. But the article gave two great examples of people who really benefit once they get older and can’t or don’t want to deal with the landlord duties – your choices in life shouldn’t be dictated by the tax code:
Bill Horan of Realty Exchange Corp. in Gainesville, Va., told me about recent transactions that illustrate some of the objectives of tax-deferred property swaps. In one, a rental property owner exchanged it for two Dollar General stores. The owner “didn’t want to be a daily landlord anymore,” which involved hands-on management duties and liabilities, Horan said. By rolling his rental housing gains and equity into “triple net” leased retail properties, where the tenants essentially are responsible for everything, he was able to simplify his life, diversify his portfolio and potentially make greater gains in the future with retail real estate.
Another small investor swapped a rental home in Virginia for a rental condo in Fort Myers, Fla., where he intends to move for retirement. “He wanted to own property near where he’s going to live,” Horan said. Because the Fort Myers unit cost $412,000 and the rental home he relinquished was valued at $525,000, the investor ended up paying a modest amount of capital gains taxes.
“Of course, since the Amateur-in-Chief is going to eliminate the tax on estates more than 10M, the strategy is just to hold till death, and pass it on to your heirs tax-free.
Real estate salespeople will get the business when heirs divest, just less flipping will occur…”
“Amateur in Chief…” I love you “double-down” guys. The life jacket’s ready for you whenever you need it. Just give a holler. We’re here to help.
Death taxes are double-taxation, and government overreach, if not abject government thuggery. I’ll be glad to see it gone, if only for ethical considerations.