Biden's Proposed 2024 Budget & 1031 Exchanges (2024)

FAQs

What is the Biden 1031 exchange proposal? ›

The proposed budget suggests that Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a ...

Under the Tax Cuts and Jobs Act, Section 1031 now applies only to exchanges of real property and not to exchanges of personal or intangible property. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange.

In 2024, the rules for 1031 exchange in California are:

Your new property must be of equal or greater value (to fully defer tax) You must invest all the money you made from the sale.

Biden capital gains tax increase

Biden's FY25 budget proposal would nearly double that capital gains tax rate to 39.6%. That proposed capital gains rate increase would apply to investors who make at least one million dollars a year.

Section 1031(f) provides that if a Taxpayer exchanges with a related party then the party who acquired the property in the exchange must hold it for 2 years or the exchange will be disallowed.

Property that does not qualify includes but is not limited to a primary residence, a second home, flip properties, or a property held in inventory for sale. Recent changes to tax law disallow personal property (artwork, boats, etc.) as valid property in a 1031 Exchange at the federal level.

If a property has been acquired through a 1031 Exchange and is later converted into a primary residence, it is necessary to hold the property for no less than five years or the sale will be fully taxable.

A 1031 exchange is very straightforward. If a business owner has property they currently own, they can sell that property, and if they reinvest the proceeds into a replacement property, there's no immediate tax consequence to that particular transaction. They can defer any capital gains taxes associated with that sale.

Structuring A 1031 Exchange Will Defer A Gain Or Loss

You can not change your mind when you complete your income tax return and realize that you actually have a loss. The loss must be deferred if the disposition or sale was structured as a 1031 exchange transaction.

short-term) and your income (what tax bracket you fall in.) For short-term gains, you can follow the regular guide for income tax to see how much you will pay for profits. The long-term capital gains tax rates for the 2023 and 2024 tax years are 0%, 15%, or 20%.

At what age do you not pay capital gains? ›

Capital Gains Tax for People Over 65. For individuals over 65, capital gains tax applies at 0% for long-term gains on assets held over a year and 15% for short-term gains under a year. Despite age, the IRS determines tax based on asset sale profits, with no special breaks for those 65 and older.

What is the basis for the new property? Calculating the basis for the new (replacement) property in a 1031 exchange is simple--the purchase price plus the commission paid. The basis for the new asset must be equal to or greater than the relinquished asset for a successful 1031 exchange.

To qualify as a 1031, both properties involved in the exchange must be “like-kind,” meaning they must be of the same nature, character, or class as defined by the IRS. A few key points to know: Most real estate properties are classified as like-kind.

If you want to diversify your assets with a different property or would like to purchase a property that has better-estimated returns, a 1031 exchange is a great tool. It could also be helpful if you currently manage the investment property that you own but would rather purchase one that's already managed.

The three primary 1031 exchange rules to follow are: Replacement property should be of equal or greater value to the one being sold. Replacement property must be identified within 45 days. Replacement property must be purchased within 180 days.