Donald Trump’s return to the White House has significant implications for the future of tax-deferred exchanges under Internal Revenue Code (IRC) Section 1031, commonly known as 1031 exchanges. These exchanges allow real estate investors to defer capital gains taxes by reinvesting proceeds from the sale of a property into a similar, or “like-kind,” property. The Harris campaign had proposed substantial limitations on these exchanges, which now seem unlikely to materialize under the new administration. 1 UNDERSTANDING 1031 EXCHANGES PROPOSED CHANGES BY THE HARRIS CAMPAIGN TRUMP AND THE FUTURE OF 1031 EXCHANGES
Established in the early 20th century, Section 1031 of the IRC permits real estate investors to defer paying capital gains taxes on the sale of a property provided the proceeds are reinvested into other business or rental real estate within a specified timeframe. This mechanism has been instrumental in promoting investment and liquidity within the real estate market, enabling investors to upgrade or diversify their holdings without immediate tax burdens.
During the 2024 campaign, Vice President Harris advocated for significant reforms to 1031 exchanges. The proposed changes included capping the deferral of capital gains at $500,000 per taxpayer annually, or $1 million for married couples filing jointly. Gains exceeding these thresholds would be subject to immediate taxation. The rationale behind this proposal was to increase tax revenues and address perceived inequities, as critics argue that 1031 exchanges disproportionately benefit wealthy investors. 2
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