You don't write off your rental income. You depreciate the rental property over 27½ years and write that off against your rental income. Few rental properties will have under a 3.7% ROI where depreciation would cover all the income. At best you might be paying half tax. In your example, you'd pay no tax, but you'd lose out on the potential income you could have had with better investments (and lose about 6 years' worth of depreciation by the depreciation then being too fast).
And flipping to more and more expensive properties through 1031s requires more and more capital and only makes it cover less taxes. There's no tax benefits versus just keeping the first property and paying all the taxes and buying a separate property to depreciate.
If you sell a $500k property earning $40k/year where the depreciation covered 45% of your income, and you buy a $1 million property earning $80k/year, you get a new $500k to depreciate $18k/year. Then the depreciation only covers 22% of your income.
Depreciation is very fundamental to business tax law. I'm not sure how you'd "fix" that without penalizing non-rental companies for expanding.
And flipping to more and more expensive properties through 1031s requires more and more capital and only makes it cover less taxes. There's no tax benefits versus just keeping the first property and paying all the taxes and buying a separate property to depreciate.
If you sell a $500k property earning $40k/year where the depreciation covered 45% of your income, and you buy a $1 million property earning $80k/year, you get a new $500k to depreciate $18k/year. Then the depreciation only covers 22% of your income.
Depreciation is very fundamental to business tax law. I'm not sure how you'd "fix" that without penalizing non-rental companies for expanding.