Washington, D.C. Year-end Update from the President of IPX1031
December 27, 2023
I have been traveling to Capitol Hill since 2014. In the 2017 Tax Cuts and Jobs Act, section 1031 was targeted for repeal. We survived that challenge (for real estate exchanges) but it required monthly trips to Washington and over 500 meetings.
In 2019, the Democratic Party gained a majority in the House of Representatives and we conducted 150 meetings on Capitol Hill in preparation for the 2022 election results. That work has been very beneficial. Although section 1031 has been in the President’s budget to be capped at $500,000 per taxpayer since 2022, we were successful in keeping section 1031 out of the Build Back Better Act and The Inflation Reduction Act. In our opinion, a $500,000 cap would have the same effect as repealing section 1031.
Despite all the efforts to educate our representatives about the value that tax deferred exchanges have to the US economy and the billions of dollars of tax revenue that exchange activity creates, there are still those in Washington DC that are convinced that 1031 Exchanges are a loophole that is exploited by the wealthy to avoid paying “their fair share of taxes.” As a result, section 1031 will always be a target. We can never stop our education efforts.
Although we have Members of Congress in both parties that support Section 1031, many knowledgeable and supportive Members of Congress will not be coming back after the next election. The new Congressional freshman class needs to be educated about the facts relating to the value section 1031 has to the US economy.
In April 2023, IPX1031 employees and our trade organization, the Federation of Exchange Accommodators (FEA) flew to Washington, D.C. Seventy meetings with staff and Members of Congress were accomplished on one day. In addition, over the past year, the FEA has conducted 15 individual meetings with members of both parties who are on the key Senate Finance and House Ways and Means Committees.
Earlier in December 2023, the FEA and the Real Estate Roundtable met with the White House/National Economic Council staff. We presented new data that focused on the current state of the commercial real estate market. Using 2019 as a base, it showed that 1031 transactions were up 15% while commercial transactions were down 22%. This was timely data that hopefully will inform the administration on their future plans. It showed the important role section 1031 plays in providing liquidity and capital to transform, repurpose and improve distressed property making it viable and productive.
Plans are being made for the upcoming election and for 2025. At the end of 2026, many expensing provisions in the Tax Cuts and Jobs Act expire. Regardless of the election outcome, the tax code will change. That is when 1031 will be vulnerable. Between now and then we will stay “on the field” to meet that challenge.
Thanks to the hard work by employees of Investment Property Exchange Services, Inc. (IPX1031), the FEA, the Real Estate Roundtable, and a coalition of more than 30 real estate associations representing the full spectrum of the industry, like-kind exchanges have survived another year and we will prepare for 2025 and beyond!
We will continue to fight for Section 1031, but we need your assistance. Elected officials listen more closely to their constituents! Below is something you can do to help with the Section 1031 advocacy efforts:
Talk with your contacts about preserving Section 1031. Below are the comments the FEA shared with members of Congress about Section 1031 and the cap proposed cap by President Biden (see our March 2023 update). Please feel free to use them in your conversations with colleagues, friends, and representatives.
Section 1031 is an important tool used by business owners, farmers and ranchers, middle-class taxpayers, and others to transition into locations that more efficiently meet their needs, instead of being tax-locked into obsolete assets.
The proposed cap on Like-Kind Exchanges at $500,000 is misguided because larger investors are critical to repurposing and renovating commercial real estate in our post-pandemic economy. The COVID-19 pandemic imposed unexpected and unprecedented trauma on commercial property – particularly retail, hotel, and office space. A significant percentage of these properties need to be repurposed.
These are the types of large-scale projects that revitalize entire neighborhoods, generate significant job growth, and result in widespread community improvement. Section 1031 is an effective tool to encourage this activity while avoiding market disruptions. Allowing businesses to continue to utilize Section 1031 prevents many assets from becoming shuttered blight.
Additionally, recent economic impact studies concluded that Like-Kind Exchanges are a powerful stimulant of transactional activity that, in addition to the benefits described above, generates significant local and Federal tax revenue and contributes to the health of the U.S. economy. The studies found that exchanging buyers make real estate investments that are substantially greater than non-exchanging buyers, resulting in improved communities in which to live, work and play. These studies quantified that limiting or repealing Section 1031 would cause significant economic contraction and job loss.
Most importantly, under Section 1031, taxes are merely deferred, not eliminated!
Thank you for your help in IPX1031’s advocacy efforts. We will keep you updated with additional information as it becomes available.
Why Like-Kind Exchanges in a Distressed RE Market Make a Difference PDF (2023)
Sustaining American Businesses During Economic Uncertainty brochure
Ernst & Young Study Summary (2022)
Ling and Petrova Study Summary (2021)
IPX1031 Tax Reform resources
Send a letter to Congress