Opinion: the limit on 1031 exchanges is a recipe for stagnation in the development of commercial real estate



Workers build a housing estate in West Auckland. Photo by Anna Wernikoff for CalMatters

An important instrument for the recovery of our American economy is at serious risk as part of the $ 1.8 trillion American families plan considered in Washington – and the damage will be felt in every state, city and town still suffering from the ravages of COVID-19.

Over the past 100 years 1031 similar exchangeswhich allows investors to defer taxes on profits from the sale of real estate by reinvesting that money in new real estate has been a cornerstone of the US commercial real estate market, bringing economic benefits at all levels that far exceed the amount of deferred taxes. The $ 1.8 trillion plan presented last month by President Joe Biden proposes to cap the amount of profit that can be deferred at $ 500,000.

This short-sighted and counterproductive ceiling is a recipe for economic stagnation, not recovery.

Every community in the country, including San Diego and the entire state of California, has seen countless shopping malls, strip malls and restaurants shut down due to the pandemic. Precipitation continues in hotels and office buildings. Virtual meetings will forever replace business travel, and many people will work exclusively from home.

Substantial reinvestment for the conversion of these properties and the reconstruction of commercial space will be required to restore the economy. Section 1031 provides important capital to revitalize communities in San Diego and throughout Southern California and grow our economy.


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