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Looming Threat To 1031 Exchanges - Here We Go Again

It appears that the politicians are, once again, threatening to impose limits on how investors can defer taxes under the 1031 exchange. Since the creation of the 1031 exchange in 1921, some politicians have taken the position that real estate investors have a “sweetheart” deal whereby they can reinvest up 100% of the proceeds from the sale of an investment property as long as they continue to invest in real estate. They take the position that the government is in effect providing an indefinite interest-free loan favoring real estate investors over those who invest in other types of assets whose gains are taxed at time of sale. 

FY 25 Budget and 1031 Exchanges

The US Department of Treasury recently released their analysis of the current administration’s FY 2025 Budget. Among many sweeping changes to the tax code, this budget contains hard limits to the amount of tax deferrals that would be eligible for 1031 tax treatment. Specifically, the proposed changes would allow 1031 tax deferrals on aggregate gains only up to a limit of $500,000 for individuals or $1,000,000 for married couples who file jointly. 1031 exchanges above these annual limits would be recognized in the year the sale is completed and would be subject to taxes. 

Impact on Real Estate Investors 

Per IRS statistics, the elimination of 1031 exchanges would disproportionately hurt smaller investors and everyday people and impact the ability for individuals to enjoy retirement. Many people are counting on their real estate dollars to buoy their retirement funds; anything less, might push back their retirement date or put them on a strict, fixed budget. In fact, per data from the Joint Committee on Taxation, individuals and not corporations receive more than 70% of the benefits of deferring taxes through 1031 exchanges. Furthermore, IRS data confirms that four out of five individual tax filers reported Adjusted Gross Income of $200,000 or less.

Further, eliminating the 1031 exchange will have a serious impact on residential renters by reducing stock of apartment supply and creating rising rental rates due to a supply and demand imbalances, worsening housing affordability at a time when both renters and owners are struggling to make rent and mortgage payments due to lost income from the pandemic.

Apartment transactions account for nearly one-third of all 1031 exchanges. The loss of the 1031 exchange would greatly reduce incentives for developers to build more units due to loss of profitability and reduce real estate capital investment and development, which would be truly detrimental to communities at a time when the U.S. is desperately in need of economic expansion.

1031 exchanges not only boost the amount of total real estate investment, contributing to greater liquidity and lower rental rates, they also make it possible to borrow less. By deferring the tax liability, investors participating in a 1031 exchange can allocate sales proceeds toward the purchase price of a new property, making a larger down payment and taking out a smaller mortgage which in turn is benefiting the greater overall market stability and creating additional value for local communities.

The repeal of 1031 exchanges would also negatively impact property values and would be felt most acutely in cities and regions where tax-motivated buyers are most active. State and Federal governments could also face reduced revenues as there will be fewer sales transactions and less taxes would be collected. Take California for example – a state with capped property taxes would experience a reduction in property taxes since fewer investors will sell and keep their older, lower property taxes in place.

Resulting Tax Revenues are a Drop in the Bucket

A widely circulated study by Professors Ling and Petrova calculated that, under a best- case scenario, the government would only collect an additional $41 billion in tax revenues. While not a small amount, it is a is very small in comparison to $1.7 trillion in new spending authority in the FY 25 budget. 


Moves to limit the 1031 exchange are likely to have far reaching negative consequences on the real estate industry and for real estate investors. As our spending mounts and deficits continue to rise, real estate investors should expect more efforts by politicians on both sides of the aisle to further compromise and eliminate what real estate investors have long enjoyed. 

The time for savvy use of the 1031 exchange is now. 

First Guardian Group will publish further updates including suggestions on how investors can influence politicians to block the proposed changes. 

Please contact FGG10131 | First Guardian Group for more information.  You can also schedule a call directly with Paul Getty here

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1 See page 147. 

2 IRS, Statistics of Income Division, Sales of Capital Assets Data, Tax Years 2007-2012 (most recently available information) 


Paul Getty

Paul Getty is a licensed real estate broker in the state of California and Texas and has been directly involved in commercial transactions totaling over $3 billion on assets throughout the United States. His experience spans all major asset classes including retail, office, multifamily, and student, and senior housing. Paul’s transaction experience includes buy and sell side representation, sourcing and structuring of debt and equity, workouts, and asset and property management. He has worked closely with nationally prominent real estate brokerage and investment organizations including Marcus Millichap, CB Richard Ellis, JP Morgan, and Morgan Stanley among others on the firm’s numerous transactions. Paul also maintains a broad network of active buyers and sellers of commercial real estate including lenders, institutions, family office managers, and high net worth individuals. Prior to founding First Guardian Group/FGG1031, Paul was a founder and CEO of Venture Navigation, a boutique investment banking firm specializing in structuring equity investments made by institutions and high net worth individuals. He possesses over 35 years of comprehensive worldwide business management experience in environments ranging from early phase start-ups to multi-billion-dollar corporations. His track record includes participation in IPOs and successful M&A activity that has resulted in investor returns of over $700M. Paul holds an MBA in Finance from the University of Michigan, graduating with honors, and a Bachelor’s Degree in Chemistry from Wayne State University. Paul Getty holds Series 22, 62, and 63 securities licenses and is a registered financial representative with LightPath Capital Inc, member FINRA /SIPC. Paul is a noted speaker, author, and actively lectures on investments, sales, and management related topics. He is author of The 12 Magic Slides, Regulation A+: How the JOBS Act Creates Opportunities for Entrepreneurs and Investors, and Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST), available on Amazon and other retail outlets.

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