The 2020 election results placed Democrats in control of the House of Representatives, the Senate, and the Presidency. This has led to many speculations regarding the impact of potential policy changes. In particular, many are interested in exploring how they may impact the current and future economic outlook.
One area of concern is the Biden administration’s focus on eliminating the 1031 Exchange Program for high-income earners.
In his policy proposal entitled “The Biden Plan for Mobilizing American Talent and Heart to Create a 21st Century Caregiving and Education Workforce,” the president states that he’s committed to “rolling back unproductive and unequal tax breaks for real estate investors with incomes over $400,000.” The president’s campaign officials have also stated the possibility of targeting “like-kind exchanges” for high-income earners.
This is a valid concern for real estate investors earning more than $400,000 a year. However, it’s unlikely that any major changes will take place in the near future.
In fact, it appears that the administration’s early moves will provide even more opportunities for 1031 exchange investors in the short term. Here are a few reasons why.
The Biden administration will likely expand education and healthcare spending. This may create commercial investment opportunities. Investors have the potential to grow by purchasing spaces that can serve as medical-retail or education space.
Expanded healthcare coverage can also increase demand for space that can be used for urgent care locations or clinics located inside drugstores and grocery stores.
Experts also anticipate an expansion of low-income areas classified as "Opportunity Zones." This creates additional opportunities for investors who want to take advantage of this program.
Tax Law Changes
Under the Biden administration, there's a clear potential for corporate tax increases. This move could accelerate the trend of major companies relocating to more business-friendly areas.
This may result in solid growth in the industrial and office sectors in places like Texas, Florida, and Las Vegas. At the same time, these same industries are likely to be hardest hit in states known for having high tax rates.
COVID-19 Vaccinations & PPP
A timely continuation of the COVID-19 vaccine rollout and Paycheck Protection Program (PPP) loans will also have a major impact on the US economy. We believe this is one of the most important moves the Biden administration can make at this time.
If everything goes as planned, PPP loans should help businesses stay viable, at least through the spring. Assuming the vaccine rollout stays on its current path, it's expected to be available to everyone who wants it by mid-summer. This will lead to another major boost in the economy.
Once the majority of the population is more comfortable going out in public, you can expect to see more money being poured into in-person venues and higher spending overall.
Likelihood of Future Changes
Despite the concern that the Biden administration may eventually set its sights on 1031 exchange law, we feel it’s unlikely that this will happen anytime soon. Since the Democrats have such a slim majority in Congress, they're expected to have a hard time pushing changes through.
To make it happen, the entire party would need to be completely aligned on the issue. However, many conservative and centrist Democrats support the 1031 exchange laws as they’re currently written.
While multiple administrations have broached the subject of doing away with 1031 exchanges, it’s not likely to happen any time soon. The current administration has a lot on its plate right now. Even if they eventually have time to set their sights on 1031 exchanges, they will likely modify the law rather than eliminating it.
The Bottom Line
For the time being, it makes sense to continue under the assumption that 1031 exchanges will remain available, at least for the next few years. To learn more about how you can take advantage of a 1031 exchange, contact us today.
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