The Obama Administration’s FY2016 Budget proposes Severe limits to IRC 1031 Exchanges & the Total Elimination of 1031s of Artwork & Collectibles
As you may have heard there are several Congressional tax reform proposals which call for repeal of Section 1031. Most recent and imminent is the Obama Administration’s FY2016 budget, released on Monday, February 2, 2015. The budget proposes to limit Real Property 1031 Exchange deferrals to $1 million per taxpayer annually and will eliminate exchanges of artwork and collectibles.
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Please visit the Federation of Exchange Accommodators Tax Reform website for detailed information and tools you can use to help.
Let your Congressional representatives know that you strongly oppose the Obama Administration’s FY2016 budget proposal to limit the application of IRC Section 1031.
You will find more information about all three proposals on our Help Save 1031 Exchanges! page.
The text of the new proposal follows:
“Modify like-kind exchange rules for real property and collectibles. Under Section 1031 of the Internal Revenue Code, no gain or loss is recognized when business or investment property is exchanged for “like-kind” business or investment property. The Administration proposes to limit the amount of capital gain deferred under Section 1031 from the exchange of real property to $1,000,000 (indexed for inflation) per taxpayer per taxable year. In addition, art and collectibles would no longer be eligible for like-kind exchanges. The proposal would be effective for like-kind exchanges completed after December 31, 2015.”
The Administration relies on the flawed argument that “there is little justification for allowing deferral of the capital gain on the exchange of real property” based upon the supposed faulty historical justification for Section 1031 deferral being the difficulty in valuing exchanged property. The Administration’s proposal ignores the fact that valuation difficulty and administrative convenience were abandoned as a justification for deferral in 1924, while continuity of investment has been the bedrock of Section 1031 for the past 90+ years.
The Administration has also argued that the typical 1031 exchange using a Qualified Intermediary “was not contemplated when the provision was enacted.” This argument for limitation of Section 1031 makes no sense when one considers that our world has evolved exponentially over the last 90+ years and the addition of the Qualified Intermediary to the exchange transaction assures that exchanges are conducted properly and within the guidelines of the current Treasury Regulations.
In addition to these arguments the Administration’s proposal ignores the dramatic positive impact that Section 1031 exchanges have on the economy as a whole and the overwhelming weight of the arguments in favor of retention of of this section.
This proposal is another indication of the efforts to undermine the economically powerful and fundamentally fair tax policy of this important section of the Internal Revenue Code.