Congress Threatens 1031 Exchange

The section 1031 exchange is part of the Internal Revenue Code that allows a taxpayer to sell appreciated real estate, to purchase other real estate and to defer tax on the gain. Congress is debating tax reform and IRC section 1031 exchanges are threatened.

The 1031 exchange benefits millions of American investors and businesses every year. Keeping the 1031 exchange is especially valuable to farmers and ranchers who own land that has often been held for generations and has little to no cost basis.

The House Ways and Means Committee Chair, Kevin Brady, is touting the House Republican Blueprint (HRB) as a means of accomplishing comprehensive tax reform which also has the backing of Speaker Ryan. The Senate Finance Committee is looking at business tax integration that dovetails with the HRB goal of lowering tax rates.

Even though none of the measures mention repeal or limitation of Section 1031, it is clear from comments made by Chairman Brady and his staff that they think the immediate expensing for personal property offered in the HRB eliminates the need for 1031 exchanges. They have also stated that the tax code will be rebuilt from a clean slate. In doing so they are hoping that nobody notices the dire implications for Section 1031 until it is too late to save it. The same thing is going to happen to interest expense deductions.

The loss of the section 1031 exchange would have a major impact on those holding appreciated real estate. Farm and ranch owners will be especially hard hit.

A proposal from the House is expected very quickly, if not in 2016, then in the early weeks of January. If you know anyone who has strong ties to Kevin Brady or anyone else in Congress for that matter, please contact them as soon as possible.

To view letter from the President of Americans For Tax Reform for ideas on what to communicate, Click Here.

For information relating to current 1031 exchange tax reform discussions, Click Here.

To read the Wealth Guide; IRC Section 1031 Exchange: A Powerful Tool For The Agricultural Family, Click Here.