Aloha Dear Friends,
I have done a ton of research on this subject, and I hope you enjoy my blog.
President Joe Biden’s new 1031 tax plan and how will this will affect the real estate investing game. Proposals are being set forth to help the economy with what is known as the “American Families Plan” to address education and child care. And a way to do this is to increase tax.
The Biden proposal would illuminate the right to defer certain tax gains on property by way of a 1031 exchange for profits over $500,000. There is no date set yet when this plan will be passed or if it will be passed at all.
What is a 1031 Exchange?
Deferred exchange is basically a way for real estate investors to avoid paying capital gains taxes on their profits. This is really only for your investment properties and not your primary residence or your specific property that you are personally living in.
A 1031 exchange is basically when you go to sell a property can you make profit on that specific property; any profit that you make you have to pay capital gains taxes at your normal tax rate, and for many people, that is a lot of money. If someone wants to re-invest in real estate, there’s a way that you can rollover that profit into another property of “like kind” and completely avoid any sort of taxes whatsoever.
Rules are when you go to sell your property you essentially have 45 days to identify another property that you are going to buy and gives you a very short timeframe for when you sell to when you have to buy again in order to avoid those capital gain taxes.
You are able to roll those profits over and continue to do that over and over again.
The really cool thing is, if you plan on holding properties and passing them down to your kids, it actually resets.
You don’t have to pay profits whatsoever once you pass away, and your kids are not stuck with the burden of having to pay all your capital gains taxes. It actually gets wiped away once you pass away, great incentive.
This new tax plan could cause a demand in single-family homes and an increase in the movement of the market and could force people to hold their property’s a little bit longer.
We are living in interesting times, and let’s hope all the new plans will actually help people as a whole.
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