IPX1031 Insight Blog

1031 Tax Reform Update – October 2016

While the Presidential campaigns continue to duke it out, we and our industry association, the Federation of Exchange Accommodators (FEA), have been busy educating the candidates about the importance of Section 1031 like-kind exchanges. In September, 26 members of the Real Estate Like-Kind Exchange Coalition sent letters to Hillary Rodham Clinton and Donald J. Trump, supporting retention of Section 1031 in its present form. In addition to the FEA, the signatories represent real estate, forestry, farm, and land conservation organizations.

Also in September, the candidates released current versions of their tax proposals. Secretary Clinton’s tax plan proposes a limitation of like-kind exchanges, but is not specific about the nature of the limitation. Insiders anticipate that the proposal would be similar to that which has been in the Administration’s proposed budget for the past several years – a limitation of gain deferral to $1 million per year.

Mr. Trump’s plan is silent on Section 1031, but is lacking in many details, particularly “pay for” provisions, so the absence of a 1031 mention does not mean that Section 1031 is safe in a Trump plan.

Additionally, recent disclosure of Mr. Trump’s $916 million tax write off has created a firestorm of media attention on a variety of tax strategies used by real estate investors, including like-kind exchanges. In response, on Oct 4, Senator Bernie Sanders (D-VT) announced that he would introduce legislation in early 2017 to “close loopholes that Donald Trump used to possibly avoid paying federal income taxes for nearly two decades.” The fact sheet that accompanied Sen. Sanders’ press release lists these “loopholes” to be closed: passive loss, at-risk, business debt and depreciation rules and, you guessed it, like-kind exchanges.

There are other proposals, both Republican and Democratic, and from both Houses of Congress that could severely impact Section 1031 as we know it. Unfortunately, the press continues to recite misinformation about Section 1031, describing it as a loophole benefiting the rich. All of this serves as a reminder that our efforts to educate our policymakers and raise awareness of the widespread economic benefits to a broad spectrum of taxpayers must continue.

Legislators and their advisors are sometimes surprised when we talk to them about how Section 1031 is a powerful incentive for conservation conveyances that benefit the public and our environment. They are similarly surprised when we tell them that Section 1031 is so widely used by individuals of modest means that even the Amish do 1031 exchanges.

You can help by sending a letter to your Senators and Congressman or Congresswoman, letting them know just how important Section 1031 is to you, your business and your clients. Real stories about real people really do make a difference.

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