Earlier today I had a conversation with well informed Boston real estate investor that explained to me some of Joe Biden’s tax proposals and its impact it may have on the Boston Real Estate market.
Joe Biden is going after one of Boston’s real estate industry’s favorite tax benefits when he proposed funding a child- and elderly-care spending platform by closing off a loophole used by Boston property investors.
Boston Real Estate Eliminating 1031 Exchanges
The Democratic presidential nominee proposed eliminating 1031 “like-kind” exchanges for investors with annual incomes greater than $400,000, as part of his plan to finance $775 billion in government spending over the next 10 years on child care and care for the elderly.
But real-estate industry experts noted efforts to eliminate 1031 exchanges have been made before. The reason the tax benefit still stands, they said, is because lawmakers recognize its positive impact on the economy.
Biden said that his proposal, which would also limit investors’ ability to offset their income tax bills from real estate losses, would add millions of “shovel-ready” jobs to the economy – particularly for women and minorities.
Boston Real Estate and the Bottom Line
Like-kind exchanges have been part of the U.S. Internal Revenue Code since 1921. They allow real estate investors to defer capital-gains taxes when they sell properties by directing the proceeds into new investments, usually within a few months after the sale.
But more than just deferring taxes, investors continually roll the gains into new properties, often in perpetuity – effectively eliminating those tax liabilities.
Please note I’m not taking a political position one way or another, and I agree as a society we need to help the needy. But by doing so we need to move cautiously and fully understand what impact changing the tax laws will have on the overall economy.