Biden Proposal Would Close Longtime Real-Estate Tax Loophole – WSJ

President Biden’s new economic plan would eliminate a tax break for many real-estate owners that has enabled them to defer paying capital gains on property sales.

Closing that tax loophole, which has existed since 1921, is part of his $1.9 trillion spending package for new social programs. The current law allows investors to defer paying tax on real-estate gains if they reinvest the proceeds in other properties within six months of the sale.

The deals are known as 1031 exchanges, named for the section in the U.S. tax code. The Biden proposal would abolish 1031 exchanges on real-estate profits of more than $500,000.

In theory, capital-gains tax from these deals eventually gets paid. But on the advice of estate planners, many real-estate investors continue to buy and sell properties this way until they die, passing the capital gains on to their heirs tax-free at death. Mr. Biden seeks to close the death loophole, too, by taxing capital gains on inherited assets.

A U.S. congressional tax committee estimated that the 1031 tax break would save property investors more than $41 billion between 2020 and 2024.

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