The 1031 Exchange Helps Real Estate Buyers Avoid Tax. Joe Biden’s Not a Fan.

The president’s proposed 2024 budget would end the famous 1031 exchange, a popular tax rule that helps property sellers avoid capital gains tax. Basically, it’s a way of swapping one investment property for another. But Joe Biden’s budget calls it an “indefinite interest-free loan from the government.”

This tax loophole, as the White House describes it: lets investors “put off paying tax on profits from deals indefinitely…Real estate is the only asset that gets this sweetheart deal.”

But can the Biden administration end it?

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Tax Liens, Deeds…And Scams

“We don’t pay taxes. Only the little people pay taxes.”

– Leona Helmsley

The Business of Unpaid Real Estate Taxes

Mortgage holders do pay taxes. Property taxes come right out of an escrow account held by the mortgage company, which the homeowner funds through monthly mortgage payments.

But some people do not have mortgages, and neglect the property tax bills. And some lose income or become overwhelmed with debt, so they default on their mortgage payments — including the tax portion.

When a homeowner doesn’t pay taxes, the government has a number of ways to recover its money. Depending on state law, it can place a lien on the title, or it can sell the house to recover the taxes — using a tax deed.

Below, we’ll look at tax liens, the use and abuse of tax liens, and tax deeds.

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For Home Sellers: Capital Gains Tax 101

Image of a nice country house during a sunrise. Captioned: Home Sellers Capital Gains Tax 101

Many people sell their homes for more than they cost in the first place. If you are in this fortunate situation, and your home has appreciated in value, you could be required to pay capital gain taxes — not on the whole sale, but on the profit your home has earned for you over time.

Homes are investments, offering an important path to financial independence. Read more about the appreciation of a home’s value on

Now, the good news for many homeowners. The IRS allows the seller to exclude a significant amount of a home sale profit from capital gains tax. (Whew!)

This article offers general information on home sales and taxes for the homeowner who is planning to sell. Note that your state may regard some or all of your capital gains as taxable income. In this article, we focus on federal law and policy.  

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For Property Investors: Six Steps to a 1031 Exchange

Two people outside discussing real estate. Captioned: Six Steps to a 1031 Exchange

Owners of U.S. investment or business properties should know about a key tax-deferral provision allowed by the Internal Revenue Service: the 1031 exchange. Also called a like-kind exchange, it’s a way of swapping one investment property for another.

Upgrading to a more valuable investment property would usually involve a taxable sale. But by carrying out a like-kind exchange under Section 1031 of the Internal Revenue Code, the property owner defers capital gains taxes. This leaves more value for the investor to put into a replacement property.

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Is a Quitclaim Deed Subject to Tax?

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Quitclaims are sometimes used to transfer property interests from one family member to another, or between divorcing spouses. Parents might wonder if they should use quitclaims to pass property to children to avoid the probate process. It’s easy enough to do. The homeowner signs the document with a notary, takes it to the county recorder of deeds, and has it recorded. Simple. No wonder adding someone to a deed or relinquishing rights through a quitclaim is often (mistakenly) called a “quick claim” deed. But what does the Internal Revenue Service think?

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Real Estate Tax Changes Could Be Coming: Spotlight on Capital Gains and the Stepped-Up Cost Basis

Image of a well appointed bedroom in what is likely a fancy house. Captioned: Real Estate Tax Changes Could Be Coming: Spotlight on Capital Gains and the Stepped-Up Cost Basis

A new administration might bring real estate tax changes. No matter what happens in this area, it’s worthwhile to know what’s going on that might affect your plans to bequeath your real estate. So here we take a look at taxes on capital gains, and then at one form of tax relief that’s now a complete question mark: the stepped-up cost basis of real property for your heirs.

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How Not to Overpay Your Property Taxes

Image of people reviewing paperwork on a desk with computers on it. Captioned: Hot Not to Overpay Your Property Taxes.

Homeowners pay taxes on their real estate to fund local services. Renters, too, pay property taxes, as they’re rolled into monthly rent charges. The property taxes we all pay go to sustain libraries and schools, emergency services, environmental projects, sewer work and road maintenance.

How much is one property’s share? To determine this amount, an assessor multiplies the local tax rate by a property’s value. Many assessors’ offices use discounted values of properties when coming up with their tax assessments, not the full market price; still, property taxes often amount to thousands of dollars each year. With local governments determining them, rates vary from county to county, and big cities generally collect higher property taxes than suburban developments or country towns do.

Home shoppers need to check the property tax when perusing a listing, and include that tax in the cost of owning a particular home. Plus, they should expect a possibly higher tax after buying the home, as there could be a new assessment when the deed changes hands.

A homeowner’s mortgage account may hold money aside in escrow. Of course, the owner pays into the escrow account — but this way, the owner’s taxes will be continually kept up to date without the owner having to remember to submit a payment each time local taxes are due.

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The Tax Lien Cometh

Back Taxes Can Impact Your Real Estate Title. Here’s How to Deal With Them.

Historical image of a window on a downtown building with the words "Pay Your TAX Now Here!" painted on it. Captioned: Back Taxes Can Impact Your Real Estate Title

What happens when a taxpayer doesn’t pay tax? If the Internal Revenue Service is slighted, it follows its age-old tradition and imposes a tax lien on the person’s property. Boats, financial accounts, the house — an IRS lien attaches to everything. And federal tax liens are resilient; they can even stay on the title through a homeowner’s bankruptcy, if they were imposed before the bankruptcy was filed.

With the lien, the government isn’t actually taking the property. But if the homeowner wants to sell the property, the government will take its cut from the sale proceeds.

Concerned you might have a lien? You can check with the recorder of deeds in the county where your home is, or review your debt records on the IRS website. If you find yourself dealing with back taxes, find a way to make good on the tax bill, or get the relief you need.

Here, we delve into the most frequently asked questions about the impact of a lien on a taxpayer’s home title, and steps the homeowner can take to keep that title clean.

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