By Frank McGovern
As you stroll through the city center, you can’t help but wonder how the cityscape will change after a year and a half of working from home. As remote working becomes the new normal, the real estate industry is counting on how it can adapt.
But at a time when cities are being redesigned, the Biden administration is considering a proposal that will make it significantly more difficult to transform businesses and reallocate real estate.
The Biden administration plans to cap similar trading in Section 1031 – a tool used by almost the entire real estate industry to invest and improve properties. It allows individuals and businesses to defer capital gains tax when they transfer the proceeds of a sale from one property to another.
As a title industry professional, I work with a wide range of clients who depend on these similar exchanges to relocate or improve their properties. So many businesses and individuals regularly use these exchanges, but for small property investors, exchanges of the same nature are essential.
With this important tool, these small entrepreneurs and businesses can invest the proceeds from the sale of one property in another real estate purchase without any incentive to do so, thus further stimulating economic activity.
The Biden administration says a cap on similar trade would close a tax loophole for the rich. But in my experience, the people who would be most affected by this cap would be the middle class and small businesses.
As we continue to recover from the COVID-19 pandemic, now is not the time to put more financial pressure on our middle class. And not only would the 1031 cap hurt small investors, it would also have serious consequences for our economy, both in Pennsylvania and across the country.
According to a recent study by Ernst and Young, the like-minded exchanges in Section 1031 will support 568,000 jobs and add $ 55.3 billion in value to U.S. gross domestic product in 2021. At a time when our economy is still recovering from sluggishness. ‘impact of the COVID -19 pandemic, these exchanges are a major engine of job growth, supporting the jobs of construction workers, title agents, home inspectors, thousands of employees of small businesses, etc.
And while it’s important for our government to find funding sources for essential programs, similar exchanges are expected to generate an estimated $ 7.8 billion in federal, state and local taxes this year, more than three times the amount. amount that the Biden administration claims. would generate by capping trade. The math just doesn’t add up.
When members of Congress consider proposals from the Administration, they should not view Section 1031 as a source of revenue. Any changes to this important tool will only cost jobs and decrease economic growth.
Frank McGovern is the Northeast Regional Legal Counsel for Title Resources Guaranty Company. He was previously president of the Pennsylvania Land Title Association (PLTA).