Do they deserve the tax break? – Orange County Register

One of the perks of our profession is to gain insight into future legislation at the state and federal levels that may affect our lives.

As you can see, the commercial real estate lobby is very influential. Recall that the great impetus that took place last year in California to defeat Proposal 15 would have changed the way property taxes are calculated for commercial real estate.

Parliament is currently discussing the deferred exchange of domestic taxes achieved through Section 1031 of the Internal Revenue Code. The rewards of huge infrastructure plans need to come from somewhere and can target wealthy commercial real estate owners.

As a quick review, tax deferral exchanges allow owners of commercial real estate to defer capital gains taxes when selling income-generating real estate. Certain criteria and time frames must be met. Otherwise, if a sale occurs, about 50% of the appreciation will be consumed by federal and state tax collectors. Therefore, except in extreme cases, the motivation to sell is lost.

David E, a lawyer for Williams and Jensen. Franasiak, PLLC, First American Exchange Co. At a webinar hosted by Julie Baird, President of Biden, we discussed the Biden administration’s American family plan and the end of a special real estate tax deduction. Real estate investors postpone taxation when exchanging real estate — for profits in excess of $ 500,000. “

The maximum number of couples to submit jointly is $ 1 million, section 1031 is effectively killed, and if the proposal becomes legal, it could be valid for transactions closed after December 2021.

I would like to look at the exchanges from a different perspective: are they really important to those who do not own commercial real estate? I’m certainly prejudiced — I’ll give you three easy ideas to consider.

There are quite a few employees in commercial real estate transactions. What is my premise? Elimination of transactions seduced by tax deferrals will also crater all work associated with those transactions.

I once calculated that 32 different people were involved in the purchase. Specifically, escrow agents, title officers, environmental surveyors, roof inspectors, general contractors, sub-general contractors-air conditioning, electricians, plumbers, flooring. Not to mention professionals such as certified accountants, lawyers and wealth advisors. Loop through several brokers to complete the ensemble. The dollars earned by the people involved circulate in the economy, groceries are purchased, rents are paid, and university funds are established. And state and federal income taxes are paid from their income.

Small business owners residing in commercial real estate through ownership are expanding their business using tax deferral exchange mechanisms. Remember that business owners use IRS Section 1031 to buy larger facilities and grow their business. Operational growth means purchasing equipment, hiring workers, and creating taxable income.

The elimination of the tax deferred exchange mechanism will reportedly generate $ 19.5 billion in 10 years with a $ 2.4 trillion stimulus package. Unfortunately, the increments are so small that they are similar to rounding errors. Too often, we lose sight of the unintended consequences of the actions we take.

As an example, a subprime meltdown occurred when access to mortgages was expanded 20 years ago. Sure, there was much more to that story. But you understand the idea.

Allen C. Buchanan is a Principal of Orange Lee & Associates Commercial Real Estate Services. He can be contacted at or 714.564.7104. His website is

Do they deserve the tax break? – Orange County Register Source link Do they deserve the tax break? – Orange County Register

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