Joint Committee on Taxation (JCT)

Legislative Excerpts

February 26, 2014: Technical Explanation of Draft of Repeal Legislation Released

Full Text:

Technical Explanation of the Tax Reform Act of 2014 (PDF)

Excerpt from Committee Draft

33. Repeal of like-kind exchanges (sec. 3133 of the discussion draft and sec. 1031 of the Code)

Present Law: An exchange of property, like a sale, generally is a taxable event. However, no gain or loss is recognized if property held for productive use in a trade or business or for investment is exchanged for property of a “like-kind” which is to be held for productive use in a trade or business or for investment. In general, section 1031 does not apply to any exchange of stock in trade or other property held primarily for sale; stocks, bonds or notes; other securities or evidences of indebtedness or interest; interests in a partnership; certificates of trust or beneficial interests; or choses in action. Section 1031 also does not apply to certain exchanges involving livestock or involving foreign property.

The nonrecognition of gain in a like-kind exchange applies only to the extent that like-kind property is received in the exchange. Thus, if an exchange of property would meet the requirements of section 1031, but for the fact that the property received in the transaction consists not only of the property that would be permitted to be exchanged on a tax-free basis, but also other property or money, then the gain to the recipient of the other property or money is to be recognized, but not in an amount exceeding the fair market value of such other property or money.

Additionally, any gain realized on a section 1031 exchange must be recognized to the extent that the gain is subject to the recapture provisions of sections 1245 and 1250.

No losses may be recognized from a like-kind exchange.

If section 1031 applies to an exchange of properties, the basis of the property received in the exchange is equal to the basis of the property transferred. This basis is increased to the extent of any gain recognized due to the receipt of other property or money in the like-kind exchange, and decreased to the extent of any money received by the taxpayer.

The holding period of qualifying property received includes the holding period of the qualifying property transferred, but the non-qualifying property received is required to begin a new holding period.

Provision: The proposal repeals the provision providing for nonrecognition of gain in the case of like-kind exchanges.

Effective Date:The proposal generally applies to transfers after December 31, 2014. However, an exception to repeal is provided for any transfer subject to a written binding contract entered into before January 1, 2015, where such transfer is completed before January 1, 2017.