Could Bitcoin be the future of 1031 exchanges?

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Real estate investors Investors have long known about the power of a 1031 exchange. It’s one of the most reliable ways to build wealth and defer taxes along the way. Named for IRC Section 1031, this piece of tax law allows real estate investors to defer capital gains taxes from the sale of a property and incorporate them into the purchase of a new investment property. To take advantage of this valuable option, investors must find and purchase a similar property within 180 days of the original sale. Then, technically, the profits are not realized, but simply exchanged for the new property.

Serial investors are known for doing this repeatedly on properties, whether it’s buying their own properties outright or working with a platform that facilitates 1031 exchanges. There’s no limit to how often an investor can use a Exchange 1031. A presidential candidate is suggesting a new way to do a 1031 exchange that could drastically change the process.

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A new path for 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 that he would order the Treasury Department to purchase 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 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 essentially be tax-free. By signing an executive order to treat Bitcoin as an asset eligible for a 1031 exchange, he would allow real estate investors to turn real property into digital currency without tax consequences.

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President Trump also said he would create a national stockpile of Bitcoin. He said, “If cryptocurrency 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 appoint a cryptocurrency advisor to create new regulatory guidance. He compared cryptocurrency 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 consumption. He said he would free people from regulations on using electricity to mine Bitcoin 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 this is necessary for the energy demands of Bitcoin and artificial intelligence.

The Biden administration has proposed limits on the 1031 exchange program, capping deferrals at $500,000 per taxpayer per year. This type of proposal has been floated before and has always been rejected. The 1031 exchange remains a valuable tool for real estate investors and seems unlikely to disappear entirely. Whether or not it will become a way to get into Bitcoin is another question entirely.

Looking for real estate wealth without a 1031 exchange?

You don’t have to own investment properties directly to profit from real estate. The current high interest rate environment has created an incredible opportunity for investors to earn income without becoming owners. 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 investment platform backed by Jeff Bezos has just launched its Private Credit Fundthat provides access to a pool of short-term loans backed by residential real estate with a target annual net yield of 7% to 9% paid to investors monthly. The best part? Unlike other private credit funds, This has a minimum investment of just $100.

Don’t miss this opportunity to take advantage of high-yield investments while rates are high. Check out Benzinga’s favorite high-yield offers.

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