Save the 1031! Share your stories with the National Association of Realtors!
[{"id": "h2jumvz", "text": "I am fucking terrified they'll get rid of the 1031 exchange.", "replies": [{"id": "h2juwil", "text": "Aren't we all", "replies": [], "depth": 2}, {"id": "h2kc3la", "text": "Out of curiosity, why?", "replies": [{"id": "h2kea78", "text": "Taxes.", "replies": [], "depth": 3}, {"id": "h2kep0i", "text": "People start hoarding land and become less likely to sell &amp; buy because of the extra tax incurred on every sale. 1031's are an INSANELY useful tool ESPECIALLY to small and new investors. If I have a plaza that I am selling for 100K and the tax on that sale is 10K then I am out 10K to the government after the sale. Under a 1031 exchange I can sell my plaza in question, BUY another plaza with ALL of that 100K and get a break on the tax of the sale deferred to when I sell the second plaza I bought with the proceeds, I will have effectively saved 10K that I must pay on the sale of the second plaza anyways. \n\n&amp;#x200B;\n\nIt's like trading up what you have without paying taxes on the \"trade\" up until you decide to sell your asset all together.", "replies": [{"id": "h2khfyz", "text": "You may not ever pay taxes on a sale if you keep investing. Unlike any other asset class to my knowledge. And when you die your heir(s) get the assets at a stepped up basis.\n\nYour scenario, assuming a 15% long term capital gain tax rate, implies a $66k realized gain on your investment basis. So I\u2019d argue you\u2019re still doing pretty well even if you have to chip $10k in for Uncle Sam. \n\nThat being said, things may look different if Biden manages to significantly increase the capital gains rate.", "replies": [{"id": "h2ki1qs", "text": "You understand perfectly, 10K was more a round representative number but yes you can keep waterfalling the money into the investment", "replies": [{"id": "h2kieid", "text": "From a philosophical standpoint I think it\u2019s problematic based on that. And given the example I doubt it will truly lead to long term real state hoarding.", "replies": [], "depth": 6}], "depth": 5}, {"id": "h2l866a", "text": "&gt;You may not ever pay taxes on a sale if you keep investing.\n\nCorrect.  That is precisely the point of quality investment and financial stability.  My real estate portfolio will be moved into a trust for generations of my family after me.", "replies": [{"id": "h2loopj", "text": "How exactly does the 1031 tax loophole going away impact your ability to do that?", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "h2vk5wq", "text": "You know, I'm not sure I believe people become less likely to sell &amp; buy because of the extra tax.  The funny thing is that 1031s are way, way more prevalent on the West coast of the country.  On the East coast they're far less likely to occur.  Unfortunately I can't recall the exact ratios.  But there's not meaningful differences in liquidity on the East and West coast markets.\n\nFor those wondering why the East and West coasts are so different in terms of 1031 transactions, this is the best I can do: [https://thinkrealty.com/section-1031-west-coast-east-coast/](https://thinkrealty.com/section-1031-west-coast-east-coast/)", "replies": [{"id": "h2vkkpm", "text": "As a commercial real estate broker on the east coast, I can absolutely promise you clients and owners are either looking to take advantage of the 1031 before it dries up or are adjusting strategy to hold certain properties that they might otherwise do a 1031 with. I think the benefit lies to smaller investors because they usually do not have as much on hand cash as an established commercial owner usually does. If anything I think they should cap the amount that can be deferred as opposed to eliminating it completely.", "replies": [{"id": "h2vo2fi", "text": "Fair enough, I believe you.  I'll admit I'm pretty far removed from the facts on the ground, I'm more of a data guy, which means I miss a lot of smaller and faster moving stories.\n\nYour anecdote reminds me of when they changed the bankruptcy rules in '05; knowing the rules were about to become tougher for filers, bankruptcy filings piled in ([https://www.statista.com/statistics/817911/number-of-non-business-bankruptcies-in-the-united-states/](https://www.statista.com/statistics/817911/number-of-non-business-bankruptcies-in-the-united-states/)). Sorry for the statista reference, couldn't find anything else, but I know those are right.  Now, I will admit this supports your view that changes in 1031 rules will lead to a permanently less liquid marketplace, in that bankruptcy rule changes permanently declined the share of households that file bankruptcy.  But I would also comment that the hesitation/rush that your seeing could be a temporary reaction that evens out once new rules are in place.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "h2kc1z2", "text": "lol what do they expect? Heartwarming stories of working class families avoiding burdensome capital gains via 1031 exchanges?", "replies": [], "depth": 1}, {"id": "h2kjyfn", "text": "Controversial take here, 1031 exchanges benefit brokers far more than anyone else. If it goes away (it won\u2019t), the big brokerage houses will hurt substantially. John McNellis has great section on this in his latest book. It\u2019s easy to have rose colored glasses on when looking for an exchange property, often times investors would be better off just paying their taxes and thoroughly vetting their next deal.", "replies": [{"id": "h2mj5lo", "text": "On point, evidence in the RE literature suggests that the rush into a 1031 leads to lot of stupid and overpriced deals. Good for brokers, maybe not best for investors.", "replies": [], "depth": 2}], "depth": 1}, {"id": "h2kl1ay", "text": "Honest question here from an industry professional, property flipper and landlord. Why do we think our asset class deserves a special tax treatment? You sell a stock, you are taxed on the gain even if you reinvest in another stock. You sell gold, you are taxed on the gain even if you then buy silver with the proceeds. Sell bond...\n\nWhy should RE be any different? We already have a massive benefit in the sale of primary residences\n\nJust playing devil's advocate.", "replies": [{"id": "h2kmmed", "text": "Because the sale and subsequent reinvestment of capital gains with intangible assets like stocks and bonds don\u2019t have the same economic benefit as in real estate. The 1031 allows for a more liquid market allowing investors to apply those gains to new acquisitions and creating jobs for architects, engineers, lawyers, brokers, construction workers. Also, local municipalities benefit from increased property assessments when properties are acquired  and rehabbed with 1031 proceeds.", "replies": [{"id": "h2kqah1", "text": "I see what you saying, and I don't have any industry-wide statistics, but from my experience (as a lender for people buying with 1031s) they almost always up, not redev or rehab deals. So while what you are saying makes a lot of sense, there is at least the perception that 1031 are tax loopholes not tools for economic efficiency or economic growth.", "replies": [], "depth": 3}, {"id": "h2vkwy4", "text": "I disagree.  You're implying that capital investment in real estate is inherently more productive than into companies, which I don't think is the case.  Taking capital gains from an investment in a company that succeeded and reinvesting in a company that is starting up, or needs a recap, may well be a more economically productive use of money.  Suppose you sold GE for a profit and in '99 and cranked 1MM into Google to help them scale; is that really going to compare well with putting new countertops and appliances in a bunch of 1 BRs?\n\nThere are whole hosts of examples where you're right and real estate does create the greater economic benefit, but the point here is that real estate is not special.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]