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Print this article In this Oct 2, 2018, file photo, a for sale sign stands outside a home on the market in the north Denver suburb of Thornton, Colo. (AP Photo/David Zalubowski, File)
While President Joe Biden’s plans to increase the corporate tax rate and tax more capital gains have grabbed headlines, real estate investors are fretting over another proposed change to the tax code.
Biden wants to abolish the right for investors to defer paying taxes on the gains they receive on property investments that appreciate in value more than $500,000. The provision, which critics pan as a loophole, is known as a like-kind or 1031 exchange, named for the IRS code section. The administration plans to use the money generated by capping tax-free exchanges at $500,000 to help fund the president’s $1.8 trillion American Families Plan.
President Joe Biden (Getty)
Last spring, Newmark broker Ken Zakin was hustling to find a buyer for a client’s retail property in Queens. The tenants had stopped paying rent because of the pandemic, leading to a major loss in income for the landlords, a family that owned the building for four decades.
Zakin planned to take advantage of the 1031 exchange program, which allows real estate investors to swap one investment property for another while deferring capital gains taxes. He’d sell the retail complex, then use the proceeds to buy a more stable income-generating property for the family.
Then came then-presidential candidate Joe Biden’s campaign proposal to eliminate the popular tax deferral tactic, also known as like-kind exchanges, as part of a broader plan to finance child and elder care. Though it was merely an idea at the time, Zakin said it started a countdown clock he needed to get the deal done on the off chance that his client might lose the deferral benefit.