1031 “Like-Kind” Exchanges Are Under Fire. Again

Section 1031 of the tax code allows individuals selling and then reinvesting in new real estate to defer capital gains taxes. The provision was introduced in the 1920s as a means to settle disputes among farmers. Now, real estate professionals use 1031 exchanges as an effective tax-mitigation tool when reinvesting in new property. The ability to postpone capital gains taxes allows investors to purchase new property with 100% of the proceeds of a prior sale. Without section 1031, only about 65% of the total proceeds could be reinvested, substantially reducing earnings potential.

There have been a number of attempts in the past to repeal this tax deferral. Many decry the provision as a tax loop-hole and would like to see it gone. Given the current state of affairs in D.C., it seems unlikely that any changes will happen soon. Most tax reform is aimed at large-scale changes, not like-kind exchanges. Though estimates indicate repealing the tax break would generate billions of dollars in revenue, there is substantial risk of reduced economic growth and heavy job losses.

See Ben Mattlin, 1031 “Like-Kind” Exchanges Are Under Fire. Again, Financial Advisor, June 29, 2017.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.