Both the House and Senate versions of the proposed “Tax Cut and Jobs Act” would retain Section 1031 Like-Kind exchanges in present form, but only for real estate assets. Both would repeal Section 1031 for tangible and intangible personal property, art and collectables.
Tangible depreciable assets such as machinery, equipment, and vehicles would be eligible for immediate 100% expensing for the next 5 years. However, if that provision is not renewed, those hard assets with zero tax basis will have neither the benefits of the expensing deduction for new assets, nor Section 1031 to defer the recapture tax.
Art, collectables and intangible assets would not be eligible for either like-kind exchange treatment or immediate expensing.
On November 16, the House passed its version of the “Tax Cut and Jobs Act” and the Senate Finance Committee adopted a “conceptual” draft of its version. Next, the full Senate must consider and vote on the bill. After both bills have been passed by their respective bodies, the bill will go to conference, to be combined into a single, agreed upon bill. Once the conference work is complete, the final bill must be passed by the House and Senate before it goes to the President to be signed into law.
There are many hills to climb and thorny issues to overcome before this becomes law. Although the Senate and House versions respecting Section 1031 are very similar, there are other issues on which the two versions of tax reform differ significantly. However, Republican leadership has targeted getting it all done before year end. Nevertheless, if there is significant discord, the process could extend into next year.
This process is not over; anything can happen during the horse-trading to reconcile the bills and get the votes. Even real estate exchanges are not out of the woods. If your business or clients own machinery, equipment, vehicles, barges, boats, aircraft or other hard assets, you need to make your legislators aware that temporary full expensing is not a trade-off for permanent repeal of Section 1031. All taxpayers and advisors should continue to speak up to reinforce the powerful economic stimulus to the U.S. provided by like-kind exchanges, and the benefits that Qualified Intermediaries provide in making Section 1031 widely accessible to taxpayers at all levels.
Click here (www.ipx1031.com/action) to take action and let your legislators know how important Section 1031 is to you, your business and your clients. It only takes 30 seconds for YOU to make a difference.