Why does Biden want to limit 1031 Like Kind Exchanges to $500K? A like kind exchange, in simple terms, is when you trade the proceeds from an investment or trade property for another like-kind property

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Why does Biden want to limit 1031 Like Kind Exchanges to $500K? A like kind exchange, in simple terms, is when you trade the proceeds from an investment or trade property for another like-kind property. The IRS Revenue Code states that capital gains for like-kind exchanges do not have to be recognized. For example, a friend of mine recently bought 6 acres of investment property for $30,000. One month after he took ownership of the property, someone reached out to him offering about $60,000. My friend was unsure of what the tax consequences would be. He reached out to a CPA and he suggested a 1031 like-kind exchange because of how much he would be taxed on a short term capital gain. President Biden most likely wants to put a limit on the amount that can be recognized as a like kind exchange to keep the taxpayer from avoiding the recognition of huge capital gains. However, many would argue that the like-kind exchange rule is necessary and should not be limited. Questions: 1. Is the like-kind exchange rule fair? 2. Is President Biden's proposed limit of $500K justified? Source: https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchan ges-real-estate-tax-tips Student 2 How is President Biden redistributing wealth in America? After skimming over the changes President Biden is advocating be made to the tax code, it is clear that there is a ubiquitous push towards the reallocation of funds. That is, the vast preponderance of changes introduced increases taxes for higher-income earners. To that effect, one of the more notable suggestions is the American Families Plan - Long-term Gains Adjustment. • American Families Plan - Long-term Gains Adjustment - As has been discussed extensively in class, ordinary income comprises wages, salaries, rent revenue, etc. All the money categorized as ordinary income is subject to a marginal tax rate, which contains a relatively steep progressive tax for high-income earners. On the other hand, capital gains are made through the sale of personal property. If the property has a holding period of less than one year, short-term capital gains apply, wherein ordinary income marginal income tax brackets are used. Although, if the property has a holding period of over a year, long-term capital gains apply, which are subject to a progressive tax that is far more lenient on its treatment of high-income earners. President Biden's proposal uses the ordinary income tax bracket on long-term capital gains for taxpayers with taxable income over one million dollars. With that all being said, I fundamentally disagree with President Biden's approach, as the tax code is in place to encourage social objectives and equality goals. By way of that, Congress initially implemented the lower tax bracket for long-term capital gains to encourage growth investing. If Congress changed the law to remove the incentive structure behind long-term investments, it should come as no surprise that they would experience a decline in popularity. A far better course of action would be to increase the tax bracket for long-term capital gains so that the taxes received may be more equitable than they are currently, without completely disregarding prior social objectives.