1031 Exchanges are Under Attack

Several US government proposals would eliminate or significantly modify IRC §1031 exchanges. From outright repeal to restrictions on the types of assets that would qualify, this wildly popular (and nearly 100-year-old) investment vehicle is under attack all across Washington.
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Help us save 1031 Exchanges, every person can make a difference!

Visit the Federation of Exchange Accommodators Tax Reform website for detailed information and tools you can use to help.

 

www.1031taxreform.com

 

Contact your lawmakers through the website, voice your opposition to the proposals, and let them know how 1031 exchanges benefit you, your clients, and the American economy.

Learn About the Government’s Proposals for 1031 Exchanges

A two-year tax extender bill has been filed in the House. Williams and Jensen, FEA lobbying partner, and the FEA will continue to monitor as more develops.

 

Chairman Orrin Hatch of the Senate Finance Committee has been quoted as saying that he has five working groups directed with completing their work by the end of April, and that June or July is the right time for a Tax Reform Bill. The existing 2014 proposal from his predecessor proposed either a complete repeal of IRC §1031 or a narrowing of exchange requirements, similar to §1033, to assets that are “similar or related in service or use”, as opposed to the current standard of “like kind”.

The Obama Administration released its 2016 Proposed Budget which would limit capital gains deferrals under §1031 to $1,000,000 annually per taxpayer. Further, the proposed budget for FY2016 would eliminate artwork and collectibles as asset types eligible for 1031 exchanges.

Proposals in 2014 Last year, three major proposals were brought forward. Although none of them made it past the end of the year, any or all of them could be the starting point of new legislation.

The House Ways and Means Committee draft Tax Reform Act of 2014 actually called for complete real of IRC §1031 as of January 1st, 2015.

Read the summary of Section 1033 proposalRead the Executive SummaryRead Discussion Draft Section-by-Section Summary

The Senate Finance Committee’s Discussion Draft: Cost Recovery & Accounting would repeal IRC §1031, but consider exchanges of real property and intangible property. Additionally, the draft recommends revision of the “like kind” standard to the stricter standard in §1033 that requires exchanged assets be similar in their service or use.

Read the one page SummaryRead the Discussion Draft Summary OverviewRead Chairman’s Discussion Draft

The Treasury’s proposed FY2015 Budget would propose to cap deferred capital gains to $1M annually on real property exchanges, but is curiously mum about exchanges of personal property.

Read the proposal to modify Like Kind Exchange rulesRead the full document

NEWS UPDATES

Working Locally: GAC Members Testify on Washington State QI Law

On very short notice, Mary Foster and Suzanne Goldstein Baker testified before the State of Washington, House Business and Financial Services Committee at an important hearing on Friday, November 20th in Olympia, Washington.

The issue before the committee was proposed language creating a “fiduciary relationship” between QIs and their clients. Foster and Goldstein Baker spoke of negative unintended consequences that would ensue from broadening the statute to describe qualified intermediaries as fiduciaries, from tax law, fiduciary law and practical perspectives.

Their work illustrates how important advocacy is a every level, not just federally. Watch a video of the hearing.

Ernst & Young Study Shows IRC §1031 Repeal More Costly Than Previously Thought

Just out, the revised November 2015 study shows a net decrease in Federal revenue and a contraction of the GDP by more than $8B.

The study also predicts investments will fall by $7B, and the negative effects will impact a broad range of sectors including real estate, transportation, vehicle/equipment rental and leasing, and construction.

Download a PDF of the study, “Economic Impact of Repealing Like-Kind Exchange Rules.”

Make sure your elected representatives know how you feel about repeal of IRC §1031.

Permission to Solicit Form Now Available to Support the FEA PAC

The importance of an effective lobby on behalf of §1031 exchanges can’t be understated. Here’s your chance to demonstrate your support of the FEA PAC in their sponsorship of event with influential members of Congress.

FEA Members Sign and return the Permission to Solicit Form today!

David Franasiak of Williams and Jensen, attended a three-day fundraiser the week of November 20th and spoke with Rep. Bill Shuster (R-PA), and Rep. Bob Dold (R-IL), earning an important statement from Rep. Dold that “1031s are important.”

The same week, lobbyist Margo McDonnell spoke with Pat Meehan (R-PA), who made positive public comments about Section 1031.

The GAC forwarded a pro-1031 article to Grover Norquist, of Americans for Tax Reform, who tweeted the Banker and Tradesman article by tax law Professor Joseph Darby III, “Eating the Seed Corn” It was seen by an estimated 81,000 Twitter followers. Read the article here.

What’s at Stake

Worst Of All, They are Considering Repeal of IRC §1031

Both the Tax Reform Act of 2014 (introduced in December 2014 as HB1) and the Senate Finance Committee’s “Discussion Draft: Cost Recovery & Accounting” propose outright repeal of IRC §1031. While HB1 expired and the Senate Finance Committee’s Draft did consider allowing some exchanges similar to IRC §1033, these actions are currently the most serious threats to 1031 exchanges. Repeal of, or significant restrictions to IRC §1031 would have a significant negative effect on the overall economy. In fact, experts have predicted a downturn simiar to that experienced after “tax reform” in the 1980s.

They’re Looking at Capping the Annual Gain Deferral at $1M

The US Treasury’s 2015 budget also attacks IRC §1031 exchanges. It proposes to place a limit on real property exchanges to $1 million annual gain deferral. Certainly not appearing as significant as outright repeal, this proposal nonetheless could significantly dampen the investment climate as it would expose gains to taxation while the investment was being held. This approach seems based on the concept that participants in 1031 exchanges are somehow not paying their fair share of taxes. In fact, taxes are paid when the asset is sold, through tax on forgone depreciation, and when the estate is settled.

Now They’re Proposing to Eliminate Artwork & Collectibles as Eligible Assets

The Obama Adminstration’s 2015 budget as submitted on February 2, 2015 would remove artwork and collectibles as asset types eligible for inclusion in IRC §1031 exchanges. One could make the case that applying 1031 exchanges to these kinds of assets doesn’t have the positive effect on the economy that real property transactions do. But that would not be true. The positive economic benefits are easy to understand: from art dealers, insurers, and appraisers, to the exchange facilitators themselves, 1031 exchanges are a shot in the arm to the economy.

Why We Support 1031 Exchanges

IRC 1031: An Important Part of Nearly 100 Years of US Tax Policy

Like-kind exchanges through IRC §1031 have been an important part of the US Tax Code for nearly 100 years, benefiting investors of all types and providing crucial stimulus to the economy.

1031 Exchange Investors Pay Their Fair Share of Taxes (Maybe More)

Investors using IRC §1031 exchanges pay their share of taxes on their gains: when they sell the replacement asset, through income taxes on forgone depreciation, and by becoming a portion of an estate (which is, incidentally, taxed at a much higher rate).

The Undeniable Benefits To The Economy of IRC 1031 Exchanges

The economic activity stimulated by 1031 exchanges is truly significant. From the positive impact of real estate transactions and the incentive for taxpayers to replace and upgrade machinery and equipment, to the knock-on effects of infrastructure upgrades and the hiring of an expanded workforce, 1031 exchanges are a boon for the economy.

Make Your Voice Heard

If 1031 exchanges are a part of your investment strategy, get your friends and colleagues involved. Most of all, tell your elected representatives that 1031 exchanges are good for the economy, and that you want them left alone.

Copy and paste this into an email and it send out:

Join me and show your support for leaving IRC §1031 unchanged so that it can continue to stimulate the economy and enable investors of all levels to achieve the American Dream. Enlist your friends and colleagues, call your Congressman or Senator. Learn more at the FEA §1031 Tax Reform Website  and take action Email Congress via the FEA site.

FEA Letter

Send this letter to all of your clients, referral sources, advisors and colleagues and encourage them to contact their elected representatives TODAY in support of IRC Section 1031.

Download the FEA PDF letter.