Will 1031 Exchanges be Limited if Harris is Elected

It appears that Vice President Harris will recommend the Biden proposal on Section 1031 exchanges.

Photo by 雨 空 on Unsplash

If Vice President Harris is elected president, she will likely propose curtailing the ability to do a full tax-deferred exchange under Section 1031.

We know that President Biden proposed in his Green Book a limit of tax deferral under Section 1031 of $500,000 for singles and $1,000,000 for married couples. This would hurt certain farmers who would like to exchange farmland to other farmland or real estate.

However, there may be creative ways to get around some of these limits. One example is to sell a partial interest in land in December with the remainder being sold in January. Now the IRS may come up with ways of preventing this, but it may work for some farmers in certain situations. Here is an example:

Gary and Jeanne own a half-section that is worth $2.5 million and they paid $500,000 for it many years ago. They would like to exchange this land for a half-section that is contiguous to their current farm operation. They find a buyer that is willing to purchase 50% of the land in December for $1.250 million and the remainder in January of the following year. The gain of $1 million in each year is allowed to be deferred under President Biden’s current proposal.

But again, there may be restrictions on the ability to do this type of structure, but this is currently only a rumor, but farmers should be aware that certain restrictions on 1031 gain deferral may be coming.