Real estate investors must know the potential changes for the 2024 tax season on the 1031 tax advantage. Avoiding hefty capital gains taxes saves investors money on their investments. Something recently came up for a change through the Biden administration. This is what could happen and some useful trends to expect for 2024.

Is This The End?

The Biden administration called to change the opportunity known as a 1031 tax advantage because it benefits the rich and not the average person. Realistically speaking, this means the administration could stand to bring in $19 plus billion over the next ten years. Biden’s administration proposes that the tax advantage cap change to $500,000 for one taxpayer and $1 million for married partners. The opposition to this proposal of the Biden administration states that the implications of the proposal will detrimentally affect the economy. The owners would refuse to sell, and later, refuse to buy. The people who keep the foundation of real estate going are those exact investors that use this tax advantage to buy and sell. Because of this, people can end up homeless because the collapse would eventually impact renters.

Rentals

Given the wish to work for themselves, many people have turned to renting out their homes and living in smaller places. If the changes to the 1031 exchange go through, investors will stop selling. Owners are behaving proactively to avoid losses. The first is the creation of more rentals. Homeowners that can’t afford their mortgage from the pandemic losses are moving into smaller places and renting out their homes at a premium. Because there are fewer rentals, this allows them, in some situations, to make four times their mortgage. They live off the income and cover their costs. The second thing that changes is a serious hike in business rental costs. If someone owns a business, they can simply rent it out to someone else at a premium. Because nobody wants to sell with all the potential costs involved, they are renting them out instead. This creates wealth during these hard times and, for some, has led to a new stream of wealth for the future.

Investors Replacing Debt

One thing that 1031 allows is replacing the profits from the old sale of a property into a new one to avoid those hefty taxes. Presuming that the proposal doesn’t go through, this works well. It’s widely used now, in 2024, for investments because the exchange law allows for it in the current tax code. People have done this extensively to survive these trying times that we went through in the Pandemic. If an investor wants to use this technique, they should make sure the exchange is within the proposed threshold or divide up the sale of the properties into “chunks of sorts.” Investors should always consult an attorney prior to the exchange to protect themselves. If done properly, the investments exchanged work, as long as they are within the caps. This leads us to the next trend for 2024.

Investors Helping Family

Many investors are planning to sell their properties to their children on an installment basis. It reduces the tax bill to installments owed overtime. Other financial investments sold can cover those losses. This balances out the tax situation if needed. Protecting long-term wealth like property is essential if the country is to remain solvent. People dislike the proposal of the Biden administration for this reason. It can literally destroy the wealth that created the country. This method of avoiding large losses can help in the interim if the sales are over the proposed limits. This also ensures that children have personal wealth going into the future. Using the distribution of the properties, each family member has access to all of it, should changes need re-adjustment later.

Carefully consider the consequences before the sale of a property of an investment. Mistakes can be financially devastating if the law isn’t carefully evaluated to protect assets. Investors use gains to build more wealth and re-build our economy, but it takes intelligent decisions with a professional. Always consult one prior to making major changes in a property exchange.