admin / April 18, 2022
SVN Now returns this week covering proposed changes to the 1031 Exchange. Tune in to hear what SVN President and CEO Kevin Maggiacomo says about these dramatic changes and even the idea of its elimination.
Click here to view this week’s topic: 1031 Exchange
Read on for the video transcript!
SPEAKER: Kevin Maggiacomo
Hello, I’m Kevin Maggiacomo, President and CEO of SVN. Those of us in the CRE (commercial real estate) industry and beyond really have been talking about and reading about proposed limitations or in effect the elimination of the 1031 exchange. And much like it did last year, the current administration has the 1031 exchange in its crosshairs.
The 2023 fiscal year budget proposal calls for a cap on deferral gains, which would equate to a significant rollback that would at best limit the exchanges, attractiveness. And in support of this, the Administration estimates that the federal government would bring in and generate an additional 70 billion over the next 10 years. But I’m not so sure that their math is right, and that this would result in even positive net tax revenue. So consider the downstream effects of all of this as a starting point. This move would set off a race of new defensive tax strategies that would limit the tax revenue captured by the very rule change in question. So mergers with public REITs are already in the conversation and are being floated as a viable rule change workaround to account for this.
Another part of the proposed rollback that the administration that should think about is whether or not it’s robbing Peter to pay Paul. So real estate transfer taxes make up a considerable portion of state and local government tax revenues. Additional revenues from transfer taxes can easily reach into the billions of dollars in places like New York, California. In fact, according to Time Equity CEO, the proposed changes would impact more than half of all real estate transactions that take place annually. So if these rules take effect an unintended consequence of the change could be a hit to state tax revenues in the name of boosting federal tax revenues.
And then lastly, when we see 1031 (exchange), we often hear skyscrapers, right. But that’s not the case. In fact, the overwhelming majority of 1031’s are from small investors or from entrepreneurs whose investments add real value to the economy, to society, and to the Treasury.
But what do you think? I’d be interested in your opinion, call or connect with an SVN advisor at svn.com and have a conversation.
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