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