With the newly elected Republican Congress and President, tax reform has been announced as a top priority, with a bill promised in early 2017. Speaker of the House Paul Ryan and House Ways & Means Chairman Kevin Brady have indicated that their plan is to move fast, before the business lobby opposition gets organized.
The Republican plan for Tax Reform is a radical rewrite of the tax code. It is an outline that is silent on many provisions. Surprisingly, Section 1031 still may be eliminated from the tax code.
We have asked Chairman Brady and other members of the committee how Section 1031 fits into the plan for tax reform. We received this alarming response, “With the income tax rate low enough and with immediate expensing for business equipment and real estate improvements, do we still need Section 1031?”
The answer is YES we still need Section 1031 because property owners cannot expense land. Also, most or all of the real estate gain is in the land and not the improvements. For example, farmers allocate approximately 90% of the value of their real estate investment in the land. In addition to the potential loss of Section 1031, the new Republican plan is already taking away the following tax deductions:
- Mortgage interest on investment property
- Transfer tax
- Personal property tax
- State income tax
- Real estate property tax
- Local tax
- Mortgage tax
- Other real estate related taxes
Real estate owners will be sorely disadvantaged and will see their investments shrink.
If you thought we were safe with a real estate guy in the White House, we are not. Congress is writing the bill. Once they pass it, President Trump will have to sign it.
TAKE ACTION #1 – CLICK HERE to send a letter to your congressmen and women. Even if you have previously sent letters, it is important to contact them again to tell them that Section 1031 must remain in the tax code.
TAKE ACTION #2 – Contact your National Real Estate Organizations and let them know how important Section 1031 is to you and your business.
