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Ask Millionacres: What Could Proposed 1031 Exchange Changes Mean to My Investment?

Jun 16, 2021 by Marc Rapport
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Q: Hello. Recently read an article you had regarding real estate investing, depreciation recapture, and capital gains. As someone who just went through this process on a rental property I owned for 15 years, I thought your article was spot on. I was very surprised at how little money I would actually net from the proceeds if I just did a straight sale. Therefore, I did a 1031 exchange and purchased another rental property that is much closer to my current home. The question I have is that if the Biden administration decides to do away with 1031 exchanges, like has been said in the news, will that affect the property I bought last year using a 1031 exchange? I intend to eventually move into the house I bought with the 1031 exchange as it is a much nicer and larger home. But if I sell it in the future as my primary residence will the benefits of the 1031 exchange no longer apply? I would hope that there would be some type of ‘Grandfather Clause’ regarding this since when I did the 1031 exchange all the rules were in place and I followed them correctly. Can the government just toss out those rules I followed and do a depreciation recapture in the future? Thank you. -- EL
Cost: $500,000 Additional Depreciation: $100,000
Depreciation: $200,000 Sale Price: $750,000
Basis transferred to Prop #2: $300,000