INSIGHTS AND RESOURCES

Biden tax plan significantly limits like-kind exchange

TAX ALERT  | 

Authored by RSM US LLP


On April 28, 2021, the White House released a fact sheet describing tax proposals in the American Families Plan, and like-kind exchange appears to be in the crosshairs. While details are scant and the Plan is far from final, taxpayers who use or plan to use like-kind exchanges of real estate should be paying attention.

The Biden Administration has periodically signaled that it views like-kind exchange skeptically. During the 2016 presidential campaign, the Biden campaign released the Biden Plan for Mobilizing American Talent and Heart to Create a 21st Century Caregiving and Education Workforce, and Bloomberg news quoted campaign officials stating that the plan would eliminate like-kind exchange. As the government looks for new sources of revenue without taxing lower income earners, the Administration incorporated that concept in the American Families Plan, stating that it would end deferral for gains greater than $500,000 for like-kind exchange. The information released thus far does not specify whether all taxpayers would get to defer up to $500,000 of gain, or whether transactions resulting in greater than $500,000 of gain would not qualify for deferral under section 1031. It also remains to be seen when the change would be implemented.

The American Families Plan includes another proposal to eliminate stepped-up basis for gains in excess of $1 million ($2.5 million per couple when combined with the section 121 exclusion of gain from the sale of a principal residence). This change would restrict a common estate planning technique in which taxpayers continually defer gains using like-kind exchange, and then inheritors get a stepped-up basis and the tax on deferred gains never becomes due (the somewhat cavalierly-named ‘swap-til-you-drop’ concept).

Takeaways

At the moment, the American Families Plan is only a proposal and no one can say whether these provisions will survive to the final version, how they will change, or even whether the legislation will pass into law. But as like-kind exchange faces its second major challenge in as many administrations, it is clear lawmakers on both sides view trimming section 1031 as a possible source of revenue. Taxpayers relying on like-kind exchange to defer gains should consider making their exchanges sooner rather than later, and taxpayers using the stepped-up basis for estate planning should start thinking about alternative strategies in the event like-kind exchange becomes restricted. As always, RSM continues to monitor developments and will provide more analysis as more information becomes available.

Let's Talk!

Call us at +1 213.873.1700, email us at solutions@vasquezcpa.com or fill out the form below and we'll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Marty Verdick, John Charin and originally appeared on 2021-05-04.
2020 RSM US LLP. All rights reserved.
https://rsmus.com/what-we-do/services/tax/federal-tax/tax-accounting-services/biden-tax-plan-significantly-limits-like-kind-exchange.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

​Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.

For more information on how ​Vasquez & Company LLP can assist you, please call +1 213.873.1700.

Subscribe to receive important updates from our Insights and Resources.

  • Should be Empty: