Over several years, tax reform proposals have been presented by Congress and the Administration that call for a repeal of Section 1031 or significant limitations to like-kind exchanges.
Proposal Excerpts and Activity
Current Tax Reform Proposals
- A draft proposal for tax reform referred to as the House Republican Blueprint or “A Better Way,” proposes sweeping changes to the tax code. While the Blueprint does not repeal Section 1031, neither does it expressly preserve the provision.
There is a sense that some Members of Congress may think that the proposal to permit 100% immediate expensing with unlimited loss carryforward, coupled with proposed lower tax rates, would make like-kind exchanges unnecessary. This is not accurate; these proposals are not fair and equivalent substitutes for the benefits provided by Sec. 1031.
At a minimum, Section 1031 needs to be retained for exchanges of land and other assets for which expensing is unavailable.
- The Obama Administration’s proposed FY2017 Budget proposed to limit like-kind exchanges to $1 million annual gain deferral and to exclude art and collectables used for investment from eligibility.
- The Senate Finance Committee’s tax reform proposal “Comprehensive Tax Reform for 2015 and Beyond” was released in December 2014. Although it did not call for a repeal of §1031, it did list like-kind exchanges as the third largest corporate tax expenditure.
- The Senate Finance Committee’s Discussion Draft: Cost Recovery & Accounting proposed to repeal §1031, but left the door open for real property and intangible property exchanges, and suggested a potential modification of the like-kind standard to the narrower §1033 standard requiring that the properties be similar in service or use.
- The House Ways and Means Committee draft Tax Reform Act of 2014 was introduced on December 11, 2014 as bill H.R. 1 and called for the repeal of §1031. The bill expired.
Section 1031 is a valuable tax planning tool that provides a powerful engine to the U.S. economy. Like-kind exchanges promote transactional activity that results in job creation and taxable income that fuels other businesses. When the impacts of depreciation, the estate tax, and the economic stimulus from like-kind exchanges are considered, neither elimination nor restrictions to §1031 would result in additional revenue to the U.S. Treasury, an improvement to the tax code, or any benefit to the U.S. economy.
Read more about the importance of the outcome of this legislation and of preserving IRC §1031 in its present state on the 1031 Repeal Issue page.