Tuesday, August 18th, 2020 August18th2020

Sell for More News: Biden to crush commercial real estate values by abolishing 1031 Exchange

Published on August 18th, 2020

Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.


Joe Biden, the Democratic candidate for president, recently unveiled a 10-year, $775 billion plan to fund universal childcare and in-home elder care that would be paid for by taxing real estate investors.

Biden said the plan is “about easing the squeeze on working families who are raising their kids and caring for their older loved ones at the same time.” He described the current situation as a “care-giving crisis within an economic crisis within a healthcare crisis.”

The details on the funding mechanism are scarce. The 10-page plan only mentions the tax once, saying it “will be paid for by rolling back unproductive and unequal tax breaks for real estate investors with incomes over $400,000 and taking steps to increase tax compliance for high-income earners.”

According to a Bloomberg report, “a senior campaign official said a Biden administration would take aim at so-called like-kind exchanges, which allow investors to defer paying taxes on the sale of real estate if the capital gains are reinvested in another property. The official also said they would prevent investors from using real-estate losses to lower their income tax bills.”

The industry responds

The proposal was met with concern by the Real Estate Roundtable, a non-profit public policy organization based in Washington, D.C. that represents the interests of real estate.

“The long-standing like-kind exchange tax law has encouraged investment in affordable housing and other properties, generated state and local tax revenue, and spurred new jobs through labor-intensive property improvements,” says Jeffrey DeBoer, CEO of the Real Estate Roundtable.

“Exchanges reduce the need for outside financing, leading to less leverage and debt on U.S. real estate. As a result, exchanges allow cash-strapped minority, women, and veteran-owned businesses to grow their business by temporarily deferring tax on the reinvested proceeds.”

“Like-kind exchanges are particularly important during economic downturns when access to capital is less certain. In short, like-kind exchanges create a more dynamic real estate marketplace, ensuring properties do not languish, permanently underutilized and under-invested. Congressional review of like-kind exchanges is reasonable and appropriate, and we will support sensible reforms, as the Roundtable has in the past, that preserve and maintain the provision’s broad-based economic benefits.”

Changing the tax treatment of like-kind exchanges is an idea the Biden campaign has raised previously. In fact, on May 5, the Federation of Exchange Accommodators sent a letter to the Biden for President campaign defending like-kind exchanges.

Beau’s view

While it may seem to some that limiting or eliminating the 1031 exchange would only affect affluent investors and those directly related to the real estate industry, the reality is quite different.

The negative impact of changing the 1031 rules would be widespread as a result of the declining property values and reduced transaction activity.

Illustrative examples of this include diminished retirement accounts of individuals that are invested in REITs directly or indirectly via index funds or their pension. Municipalities will also lose significant revenue as the property tax base declines and transfer taxes fall.


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About Beau Beach, MBA CCIM

Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.

Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.

He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.

Beau can be reached at 800-721-3287, click to schedule a call or Beau@soldbybeachwood.com