Mar 28

We continue our look at the proposed Federal Budget, and today, it’s the 1031 exchange that’s under review.

The good news? Odds are, you’ve never even heard of this. A 1031 exchange is a way of taking an appreciated property, usually real estate (rental, not your home) and after jumping through a bit of tax hoops, you are able to sell one property, and soon after, buy another one at last as costly as what you sold, and defer the gain. It’s a neat trick for real estate investors and I’d never giving it much thought until recently. A friend sold a rental property and planned to use the money to buy a different one in a different location. I’m not an expert on this topic, but I knew enough to tell him to research the 1031 exchange and use the process to avoid a tax bill. Sure enough, it went off without a hitch. Out with the old, in with the new, and no tax bill.

Now, the new Budget limits the flexibility of the 1031 exchange. Specifically, it proposes a $1M limit per taxpayer per year for the value of deferred capital gain. Not a big deal for those with a few rentals, but if you have any larger buildings or expensive houses you rent out, you might kiss your 1031 goodbye.

written by Joe \\ tags:

3 Responses to “2015 Federal Budget – Limit on 1031 Exchange”

  1. Steve Says:

    Does the $1m limit apply to the value of the exchanged property or just the equity?

  2. Joe Says:

    Steve – thanks for visiting. I updated to clarify. The $1M is the limit of the deferred gain. So, it would take quite a large property or package of properties to hit this limit. Clearly, this will be a 1% issue. But, it’s the path toward setting a lower number in future years, hence my concern.

  3. Steve Says:

    Without reading the budget proposal, I’m going to go ahead and assume the $1 million limit is not indexed to inflation. If so, it would equate to fewer real dollars every year.

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