The Biden administration is looking into limiting 1031 exchanges to the extent that any gain beyond $500,000 will be subject to the capital gains tax. The exact limitations of the proposal has not yet been released so it is uncertain whether individuals selling their own personal residences will be subject to capital gains tax for the portion above $500,000.

The implications of this proposal are potentially enormous both in a macro sense and pertaining to our particular circumstances in Southern Utah. First, the real estate price frenzy that has occurred nationwide, which has been even more acute in Southern Utah, is in large part due to a lack of supply combined with record low interest rates. A not insignificant portion of the new residents moving here come from California which collectively has the highest real estate prices in the country. It is not uncommon for someone from the Bay Area or Southern California to have a home they have owned for 25 to 30 years that has gained in excess of $500,000 during that period of time. A homeowner sitting on a gain of over $500,000 may decide to stay put and see what the Biden administration does or see if the GOP takes control of one of the houses of Congress in 2022.

California has chronically underbuilt new housing for years which has made housing prices increase in that state  even more than they would given the higher incomes that can be earned there. Many of the new residents moving into Southern Utah from California and are able to fund a new home purchase here largely from their gains from the high California real estate prices. Potentially this will have an effect on the demand here in Southern Utah, particularly for higher end homes.

Whether the Biden Administration can pass this proposal, whether it affects personal residences and whether it in fact deters a substantial number of people from selling their residences remains to be seen. The time to have prevented any tax hit from the passing of this proposal has likely passed due to the tax being applicable to any transactions that occur in the 2021 tax year.