What Is the 1031 – Tax Deferred Exchange? Full History Update with Tina Colson-Jones

Tina Colson-Jones: Welcome to my 1031 exchange fun facts. The topic today is the history of the 1031 exchange. In 1921, the government wanted to provide taxpayers with a tax deferral strategy when selling both like-kind and non-like-kind properties and securities. The purpose for the strategy was to motivate the taxpayer to re-invest their funds into a larger investment. Therefore, the Revenue Act of 1921, originally known as Section 202c was enacted. The Revenue Act of 1924 throughout that non-like-kind option, and in 1950, an amendment was made to the tax code and Section 1031 came into play.

Many people call today asking for a Starker exchange, which is a delayed exchange by any other name. This history started in 1979 when TJ Starker and his son, Bruce had timberland in Oregon. They transferred the property to Crown Zellerbach Corp. Crown agreed to transfer like-kind property to Starker over the following five years. The US Government denied the tax deferral stating that the 1031 should be a simultaneous swap in property and the five-year transfer did not qualify.

Headlines: Starker versus United States. Starker challenged the decision and won the case as the federal task code did not require a simultaneous swap. Due to the outcome of the Starker case, in 1984, regulations were set into place to limit the time of a tax deferred exchange to 45 days to identifying property and 180 days to complete the exchange.

Up until January of 2018, the taxpayer could also exchange personal property, such as airplanes, cars, artwork, farm equipment, and even livestock. Yes, you can exchange a bull for a bull, but there is no bull here. Once the Tax Cuts and Jobs Act of 2018 was enacted, only real property will now qualify. Thank you for joining me today.