Bye-Bye 1031: Biden's Tax Plan Takes Aim at Real Estate Loophole

President Biden has proposed a budget for the Fiscal Year 2024. His plan aims to make healthcare and education more accessible and affordable, as well as lower taxes for low-income families and reduce the government's debt. However, the money to pay for these plans would come from increasing taxes on rich people and ending a tax break for real estate investors. Many people in Congress may not agree with these ideas.

The plan would raise taxes for the rich in different ways. For example, people who make at least $1 million a year would have to pay more tax on the money they earn from selling their investments. People who make at least $400,000 a year would also have to pay more tax to fund healthcare. Additionally, the very richest people would have to pay a minimum of 25% in taxes. The plan would also increase taxes on personal income and limit how much people can save for retirement without paying taxes.

Some people think that changing the tax code to make it less favorable to the rich is not as simple as it sounds. They say that President Biden's plan could unintentionally harm middle-class families. For instance, some people who sell their homes in expensive neighborhoods might have to pay more in taxes than they expected, even if they are not rich. This could make it difficult for them to afford a similar home in the same area.

Another part of the plan would eliminate a tax break for real estate investors called a "like-kind exchange." This allows investors to avoid paying taxes when they sell a property and use the money to buy another one. The government thinks that this tax break is unnecessary and favors special interests. However, this tax break is not just for the wealthy. Many small real estate investors use it to buy and sell properties to help fund their retirement or pay for their children's education.

Research has shown that eliminating the like-kind exchange tax break could have negative effects on the economy. This tax break encourages real estate investment and helps create jobs. It also makes it easier for investors to turn unused commercial properties into homes, which is important during a housing shortage. Some examples from the National Association of Realtors show how real estate investors have used this tax break to create jobs and improve communities.

Overall, President Biden's plan to raise taxes on the wealthy and eliminate a tax break for real estate investors is controversial. Some people think that these changes will help the government pay for important programs and reduce the deficit, while others think that they could have unintended consequences and hurt the middle class.