Biden, the presumptive Democratic nominee, unveiled yesterday a $775 billion plan to fund universal childcare and in-home elder care that would be paid for by eliminating tax breaks for certain high-income real estate investors, including the tax-free, like-kind exchange provision of the tax code – section 1031.
Biden made the proposal during a live appearance in Delaware and in a 10-page a written proposal. The proposal focuses on the benefits to caregivers and states. The plan would 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.” No other information is provided in the proposal, though presumably more will come as the election draws near.
Like-kind exchanges allow real estate investors to defer tax on capital gain by selling business or investment property and rolling the sales proceeds into a similar property. The gain is deferred and the buyer takes a carryover tax basis in the new property, thus preserving the gain in the new property. The rules governing like-kind exchanges are complex, and more information can be found on the IRS website.
The like-kind exchange provision has been around for more than 50 years and was tightened most recently in 2017 as part of the Tax Cuts and Jobs Act. Now it applies only to real estate, and not to personal property or intangible property.
Trump supporters claim that Biden’s proposal is political and aimed towards the President and his family, who are fixtures in the real estate industry, and Biden supporters claim it provides a much-needed source of funding that would not hurt the middle class.