April 22, 2015
Adding more supporting evidence to the argument for the preservation of Section 1031, FEA GAC leaders have released a new paper, titled, “Understanding the Impact of Depreciation on Like-Kind Exchanges.” The paper helps explain how taxes are paid on exchanged assets over time, reinforcing the fact that by using tax-deferred exchanges, clients preserve business cash flow to be used for reinvestment and are not avoiding taxes. Section 1031 provides a timing benefit for tax payment, not a tax savings benefit. The paper also points out that even though the actual dollar impact to the U.S. Treasury is zero, the economy benefits, seeing more robust economic activity generated from transferring the timing benefit derived from the exchange to the taxpayer.
The paper shows that Section 1031 like-kind exchanges are a fair, important economic tool used to preserve working capital and help businesses stay profitable in competitive markets. In clear language and examples, the paper explains the workings of this technical topic, and will be useful when discussing Section 1031 and tax reform proposals with legislators and staff.