Capitol Hill Update, December 13, 2022
Once again, Santa’s sack is stuffed with two pieces of must-pass legislation to be signed, sealed and delivered before Christmas. The good news is that in spite of a few reindeer with minds of their own, the red, blue and purple elves appear to be working together to complete the FY2023 Omnibus Appropriations bill and the FY2023 National Defense Authorization Act in time to avoid a government shutdown. Not this year, Mr. Grinch!
Thanks to much hard work by Investment Property Exchange Services, Inc. (IPX1031), our industry association, the Federation of Exchange Accommodators (FEA), and a coalition of more than 30 real estate associations representing the full spectrum of the industry, like-kind exchanges have survived another year. The robust Build Back Better bill, teetering this time last year, morphed into the smaller Inflation Reduction Act, which passed last summer. Neither bill included limitation of §1031 as a Pay For. This “non-event” took a lot of dedicated effort, resources and many meetings with policymakers to educate them about the powerful economic benefits of §1031 Like-Kind Exchanges that inure to a broad array of taxpayers and the U.S. economy as a whole.
Although §1031 is in a pretty good place and we might be tempted to do a festive Victory Dance, the reality is that continued threats are anticipated in the 118th Congress. A number of knowledgeable, supportive Members of Congress will not be coming back next year. The new Congressional freshman class needs to be educated. Moreover, some may have heard the myths, but not the facts, and be hostile to §1031.
There are issues on both sides of the aisle, such as the Child Tax Credit and a host of Tax Extenders, that will require Pay Fors. Given that §1031 has unfortunately and incorrectly been labelled by some as a “loophole,” it will always be at risk for plucking as a Pay For. Thus, we expect the proposed FY2024 Budget to again include some form of §1031 limitation. While we are grateful for our success, and like-kind exchanges are thriving, our efforts to protect this important tax timing tool must continue.
During the past year, we have posted several important resources that provide talking points about the benefits of §1031 and examples of how different types of taxpayers use like-kind exchanges to build personal wealth, grow businesses, and bring improvements and economic vibrancy to communities and the nation, including substantial additional tax revenue at the local, state and federal levels. We encourage you to review and share these valuable, user-friendly tools with policymakers within your circle of influence.
Sustaining American Businesses During Economic Uncertainty brochure
Ernst & Young Study Summary (2022)
Ling and Petrova Study Summary (2021)
IPX1031 Tax Reform resources