1031 Under Attack
1031 Exchanges have
been an integral part of real
estate’s recovery. Now the government is proposing to eliminate all
1031 Exchange activity.
For decades, real estate investors, business owners and
Fortune 500 companies have used 1031 Exchanges to defer the payment of
capital gains tax and depreciation recapture tax associated with the
sale of their investment properties. 1031 Exchanges also allow
taxpayers to maintain or diversify their portfolios and increase their
purchasing power. Any investment property or property held for
productive use in a trade or business, ranging from vacant land to
shopping centers, can be exchanged. The taxpayer must simply purchase
new qualifying real estate and follow some basic rules to complete a
tax deferred 1031 Exchange.
Even though 1031 Exchanges have long been recognized as
a major factor in encouraging real estate sales, as part of tax reform
in separate Discussion Drafts, the House of Representatives, Senate and
the President’s Budget Office have all proposed eliminating or sharply
curtailing the benefits of Section 1031:
- House Ways & Means Committee Chairman Dave
Camp released a Discussion Draft of his Comprehensive Tax Reform
Proposal on February 25, 2014. The Camp Proposal would repeal Code
Section 1031 for like-kind exchanges occurring after 2014.
- Senate Finance Committee Chairman Max Baucus' tax
reform Discussion Draft includes a proposal to repeal Section 1031 in
its entirety. The proposed repeal would apply to exchanges made in
taxable years beginning after December 31, 2014.
- President Obama’s 2015 Budget proposal also contains
significant changes to IRS Code 1031. The President’s proposal does not
eliminate 1031 Exchanges, but limits the amount that can be deferred to
$1 million per taxpayer per year.
The elimination of 1031 Exchanges will result in a sharp
decrease in real estate transactions. Due to its severe impact on all
areas of the real estate community and how this could potentially
affect you, IPX1031® will keep you up to date on these proposals.
Simply send an email to firstname.lastname@example.org
to be added to the “Washington