A RECIPE FOR DISASTER
Eating The Seed Corn: Congress Proposes Repealing Section 1031 Options
Under 1031 Benefit All Parties, Including The IRS
by Joseph Darby
November 22, 2015
Everyone understands that “eating your seed corn” is a really bad idea.
But the U.S. Congress, ever tempted by a (tax) free lunch, is contemplating the repeal of Code Section 1031, a provision that serves as the economic seed corn for a huge portion of
the U.S. economy.
Thanks to 1031, U.S. businesses can replace old equipment without being whacked with a crippling tax bill. This encourages manufacturing companies to upgrade their facilities, permits car-rental companies to maintain a newer (safer) fleet, allows airlines regularly to buy new aircraft, and enables businesses to “trade up” in real estate when they outgrow their facilities. All good stuff.
On the other hand, if you tax something, you get inevitably less of it. And rest assured that if you impose a heavy tax on trading old equipment for new equipment, you will get less new equipment. Who thinks that’s a good idea?
In fact, 1031 is a uniquely sensible and focused tax provision that encourages U.S. businesses to replace worn-out assets, which benefits everyone concerned – employees, customers,
vendors and shareholders – not to mention the biggest beneficiary of all, the IRS.