Article by Max Hansen
September 5, 2017
Uncertainty about several proposed tax reform ideas in Congress concerns farmers, ranchers, and land owners in general, writes Max Hansen. Influential legislators have suggested that lower rates and immediate expensing for business assets would negate the need for Section 1031 like-kind exchanges, writes Hansen in a Land Investor article. Like-kind exchanges are used extensively in agricultural and commercial real estate. The quandry for property owners is that these proposals do not effectively cover the benefits of like-kind exchanges. The absence of these benefits would reduce the value of their investment in land. Hansen argues that the elimination of like-kind exchanges for property does not support the primary purpose of tax reform: to stimulate economic growth.
For farmers, ranchers, non-depreciable land can make up 80 to 100 percent of the value of an investment, Hansen explains. For commercial property owners, the value can be 30 to 50 percent. Even with the House Republican Blueprint promise of lower tax rates, the value of the investments and life savings wrapped up in property is diminished by the tax bill, he says. Hansen argues that the absence of like-kind exchanges for land, and the resulting tax liability, would cause a “lock-in effect,” where land owners would reconsider selling, or worse, not sell at all.
“Deferring the gain recognition in an exchange removes the lock-in effect, takes the government out of the decision-making process, and permits taxpayers to engage in opportunistic transactions that make good business and investment sense, without the fear of negative tax ramifications,” he writes.
Hansen’s article appeared in the September 5, 2017 issue of Land Investor. Max Hansen is President and CEO of American Equity Exchange, Inc., an attorney and Certified Exchange Specialist®. He is a government affairs committee co-chair at the Federation of Exchange Accommodators.