If you’ve sold a home in the last few years you may be familiar with Section 1031 of the IRS Internal Revenue Code which enables the seller or owner of an investment property to defer paying capital gain tax on the sale of that property when those taxes are due to be paid after the property is sold.
If Washington has its way Section 1031 could be eliminated or altered soon because, there are no less than three proposals in Washington right now that seek to alter this section of the IRS Code or eliminate this Capital Gains Tax deferral all together so that the capital gains tax would just be delayed but not forgiven.
What to Expect if Section 1031 Is Altered?
Thanks to Max Baucus, the former Democratic Senator from Montana, his proposal would eliminate the current 1031 exchange and then change how depreciation schedules for residential and commercial homes / properties are calculated over the next 43 years so that any capital gains on the sale of a residential or commercial home/property would ultimately be taxed as a portion of your income.
Other senators including Dave Camp from Michigan are all for eliminating all remaining tax deferred exchanges as early as January 1st 2015 while President Obama’s proposal, part of his 2015 budget asks that all capital gains deferments be limited to $1 million dollars per tax payer starting January 1st 2015 as well.
Consequences of Altering or Eliminating Section 1031
There’s no denying that altering or eliminating Section 1031 would bring in more tax revenue for the Federal Government but what are the real consequences of making any changes to this section of the IRS code?
• More homeowners could hold onto their homes and properties instead of selling them.
• Property values could be affected
• Jobs could be lost in the Real Estate, banking and lending industries
The only real course of action that we have as tax paying citizens is to contact our elected representatives and make our voices heard that we don’t support any alteration of Section 1031 because, without the voice of the people speaking up sellers can expect Section 1031 tax relief to be eliminated once supporters of the proposals mentioned above have their way in the coming months.
What are your thoughts on Section 1031? Feel free to leave me a comment!
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