The combination of these policies would have an incredible impact on the real estate economy. Anyone facing a 50%+ combined state/federal tax is likely to lean towards holding, rather than selling, appreciated property. Without 1031 exchanges, the open real estate market could freeze. Values could stagnate and millions of jobs could be lost. To make matters worse, heirs could be forced to sell properties to pay for the capital-gains tax they inherit. Instead of market forces driving the
optimum sale and purchase timing of investment real estate, it could be tax policy that forces property to be held too long. Ironically, California’s Prop. 13 has been criticized for incentivizing some homeowners to reside in their properties longer, even though Californians’ average homeownership duration is in line with national averages. However, the impact of a sale on one’s property tax bill is a tiny fraction of the proposed 50%+ penalty on capital gains.
WHAT YOU CAN DO As an AAOA member, you likely have worked hard during much of your adult life to acquire and provide rental housing. Your real estate wealth—great or small—is the product of effort, grit, and entrepreneurship. You have owned property subject to increasing legal liability and highly lopsided regulations. Perhaps you made mortgage payments while the government imposed COVID rent moratoriums. And now certain politicians want to collect a significant percentage of your well-earned wealth, alive or dead. At 1031 Capital Solutions, we are not losing sleep over the fate of the century-old tax policy known as a 1031 exchange. Nevertheless, while the real estate lobby in Washington DC is highly influential, do not assume that the status quo will prevail. Contact your local congressperson and voice your opposition to any changes to current capital-gains tax laws. There are several smart ways to balance the federal budget, but destroying the real estate economy is not one of them.
RICHARD D. GANN, JD Managing Partner 1031 Capital Solutions (800) 445-5908 1031CapitalSolutions.com
Richard D. Gann, JD is a Managing Partner with 1031 Capital Solutions and co-author of the book, How to Retire from Being a Landlord. Richard’s grandfather, Paul Gann, authored three separate amendments to the California Constitution, including Proposition 13, the Gann Spending Limit, and the Victim’s Bill of Rights.
Disclaimer : This is for informational purposes only, does not constitute individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstance. The views of this material are those solely of the author and do not necessarily represent the views of their affiliates. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Past performance is not indicative of future results. Forecasts are inherently limited and do not guarantee results. Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. 1031 Capital Solutions is independent of CIS and CAM.
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