How the GOP Tax Plan Impacts 1031 Exchanges

1031 Exchanges: How the GOP Tax Plan Impacts Exchanges

Anybody who even half-heartedly keeps up with the news knows that the new GOP tax plan has been the talk of the country for the last month or so. And while our representatives in Washington are working towards a conclusion, the average citizen is a wonder how it will affect them. One thing that was in question was 1031 exchanges and the Davidson Law Group blog is here to talk about what the new tax plan will say about 1031 exchanges.

What is a 1031 Exchange?

A 1031 Exchange is an exchange centered around Internal Revenue Code 1031, which states that:

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”

What a 1031 exchange essentially does is allow investors to avoid capital gain taxes by selling their property and immediately reinvesting the gains into a new property. The capital gains tax, for those who don’t know, is a tax on the profits won on the sale of property or an investment.

With this type of exchange, the investor in question would be able to reinvest the entire gross equity of his or her capital gains, either giving them the option to put more towards the down payment or be able to afford a more expensive property. While you aren’t given flexibility with what you can spend the saved equity on, it is still money in your pocket. Any time tax code changes come up, IRC Section 1031 is brought into question.

Related Post: Understanding the Timing and Rules of 1031 Exchanges

What Does the New Tax Plan Say About These Exchanges?

At least for the time being, the new GOP tax plan is set to retain 1031 exchanges. This is important for sellers of property, as it allows you to keep more of your capital gains, but also allows you more flexibility in investing. And while this exchange is most often used by commercial real estate folks, anybody selling real estate and looking to buy can use it. In fact, it is almost more impactful for middle-class people who are selling the property in question because even though there may be less money involved, it allows you to save that capital that would be taxed.

At Davidson Law Group, we work for our clients and their best interests, but we also understand the financial climate behind the needs of our clients. Anybody selling a property, whether it be commercial or private, can keep more equity in your pocket through this exchange.

Related Post: Five Benefits of 1031 Exchanges

Davidson Law Group Is Here For Your Estate Needs

Davidson Law Group exists to give you the representation you deserve and keep as much money in your pocket as possible. Allowing our expert staff to handle your estate needs will ensure that you are getting the best possible deal, including 1031 Exchanges. Contact us in Fort Worth, Allen, or Tyler, or visit our website for more information.