IPX1031 Insight Blog

Senate Tax Reform Bill Draft Released

The Senate released a “conceptual” draft of its Tax Reform bill last evening.  Like the House bill, the Senate proposal retains Section 1031 Like-Kind exchanges, in present form, for real estate assets only.  It repeals 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.  Many of the Congressional offices with whom we met this week told us that the intent is to either renew or make permanent the expensing provision after it sunsets in five years.

Art, collectables and intangible assets would not be eligible for either like-kind exchange treatment or immediate expensing.

Although the Senate and House versions respecting Section 1031 are very similar, there are other issues on which the 2 versions of tax reform differ significantly. Both bills need to be passed by their respective bodies, after which 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.

Expected Timeline:

The Senate Finance Committee will begin its markup on the afternoon of Monday, Nov. 13.  They are scheduled to conclude the committee markup by the end of the week.  The Senate will then consider the legislation on the Senate floor the week after returning from the Thanksgiving recess week.

The House has wrapped up the committee markup.  They are expected to vote on their bill before Thanksgiving.  There are many hills to climb and thorny issues to overcome before this becomes law.  However, the Republicans are desperate to pass tax reform legislation, and have targeted getting it all done in December.  In our conversations in Washington, this sentiment is shared by members of both the House and the Senate.  Nevertheless, if there is significant discord, the process could extend into next year.

IPX1031 president, John Wunderlich, General Counsel, Suzanne Goldstein Baker, and Texas / Central States Regional Manager, Craig Brown were in Washington, DC again this week, along with colleagues from our industry association, the FEA, meeting with Congressional offices 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.  We will continue to remain vigilant and will send updates as more news is available on this fast-moving process.

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