1031 Exchange Problems Amid COVID

[David Haynes]

I see three forces complicating things for many buy-and-holders using the 1031 exchange: 

1) COVID is causing many to diversify their holdings to mitigate potential losses. In other words, their need to use the 1031 exchange has increased. 

2) The shortage of listed properties is complicating the 45-day search for another property. They are having to decide between paying capital gains tax by missing the deadline or paying higher for scarce properties. 

3) Biden's proposed tax plan is threatening the highest-earning 1031 exchangers (please don't make this a political debate). The point is, investors are losing trust in their previous way of avoiding taxes.

Feel free to add to my list of forces. This is by no means exhaustive or detailed.

I'm really wondering where everyone's minds are at and how you're coping with these forces...

For those needing to sell properties now, are you struggling to sell them? For your next property, how are you finding ones that make financial sense? Are you paying higher prices for your next property just to meet that 45-day deadline? Are you losing faith in the exchange itself? Have any of you considered Delaware Statutory Trusts? 

[Alex Olson]

Originally posted by @David Haynes:

I see three forces complicating things for many buy-and-holders using the 1031 exchange: 

1) COVID is causing many to diversify their holdings to mitigate potential losses. In other words, their need to use the 1031 exchange has increased. 

2) The shortage of listed properties is complicating the 45-day search for another property. They are having to decide between paying capital gains tax by missing the deadline or paying higher for scarce properties. 

3) Biden's proposed tax plan is threatening the highest-earning 1031 exchangers (please don't make this a political debate). The point is, investors are losing trust in their previous way of avoiding taxes.

Feel free to add to my list of forces. This is by no means exhaustive or detailed.

I'm really wondering where everyone's minds are at and how you're coping with these forces...

For those needing to sell properties now, are you struggling to sell them? For your next property, how are you finding ones that make financial sense? Are you paying higher prices for your next property just to meet that 45-day deadline? Are you losing faith in the exchange itself? Have any of you considered Delaware Statutory Trusts? 

I think your first 2 points are valid and interesting. However, a person can always buy something at the same price they are selling and cash out refinance or keep in the property to have it cash flow really well. I think people over think it. Also, working with a 1031 agent like myself is key to making sure you have a great transaction. For your 3rd point, I think it is premature. Virtually everyone in Congress owns investment real estate. The fact that the richest may lose some of their 1031 benefits is most likely a scare tactic aimed at politics...and not a real business scenario for quite a long time.