Could Bitcoin Be The Future Of 1031 Exchanges?
Could Bitcoin Be The Future Of 1031 Exchanges?
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Real estate investors have long known about the power of a 1031 exchange. It is one of the most reliable ways to build wealth and defer taxes along the way. Named for IRC Section 1031, this piece of tax legislation allows real estate investors to defer capital gains taxes from selling a property and roll them into the purchase of a new investment property. In order to take advantage of this valuable option, investors have to find and purchase a similar property within 180 days of the original sale. So technically, the profits aren’t realized but are simply exchanged into the new property.
Serial investors are known to do this repeatedly on properties, either by purchasing their own properties directly or by working with a platform that facilitates 1031 exchanges. There is no limit on how often an investor can use a 1031 exchange. One presidential candidate is suggesting a new way to do a 1031 exchange that could dramatically change the process.
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A New Way To 1031?
Speaking at the Bitcoin 2024 conference in Nashville, TN, Presidential candidate Robert F. Kennedy Jr. announced several Bitcoin-related executive orders that would go into effect if he is elected. Kennedy said that one of his first executive actions would be to transfer approximately 200,000 Bitcoins held by the U.S. government to the U.S. Treasury as a strategic asset. He also said he would ask the Treasury Department to buy 550 Bitcoins daily to build a reserve of four million Bitcoins to match the percentage of global gold reserves held by the U.S. As Kennedy sees it, the appreciation of Bitcoin would make these reserves eventually worth hundreds of trillions of dollars.
He would also issue an executive order to direct the Internal Revenue Service to make transactions between Bitcoin and the U.S. dollar non-reportable. This would mean that Bitcoin purchases would be essentially untaxable. By signing an executive order to treat Bitcoin as an eligible asset for a 1031 exchange, he would allow real estate investors to turn real property into digital currency with no tax consequences.
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President Trump has also said he would create a national Bitcoin stockpile. He said, “If crypto is going to define the future, I want it to be mined, minted, and made in the U.S.A.” He also said he would fire Securities and Exchange Commission Chairman Gary Gensler and name a crypto adviser to create new regulatory guidance. He likened crypto to the steel industry, saying it is still in its infancy.
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Trump also addressed the issue of Bitcoin’s high energy usage. He said that he would release people from regulations regarding using electricity for Bitcoin mining and that new power plants would be built. He suggested that this would be done using fossil fuels and nuclear energy, but in an environmentally friendly way. He said that this is necessary for the energy demands of both Bitcoin and artificial intelligence.
The Biden Administration has proposed limits to the 1031 exchange program, capping the deferral to $500,000 per taxpayer each year. This type of proposal has been brought up before and has always been shot down. The 1031 exchange remains a valuable tool for real estate investors and seems unlikely to disappear completely. Whether or not it becomes a way to move into Bitcoin is another matter entirely.
Looking For Real Estate Wealth Without A 1031 Exchange?
You don’t have to directly own investment properties to profit from real estate. The current high-interest-rate environment has created an incredible opportunity for investors to earn income without becoming a landlord. Certain private market real estate investments are giving retail investors the opportunity to capitalize on these high-yield opportunities and Benzinga has identified some of the most attractive options for you to consider.
For example, the Jeff Bezos-backed investment platform just launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. The best part? Unlike other private credit funds, this one has a minimum investment of only $100.
Don’t miss out on this opportunity to take advantage of high-yield investments while rates are high. Check out Benzinga’s favorite high-yield offerings.
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