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The House GOP Tax Bill and 1031 Exchanges

by Brandon Raatikka

Today, the Republican members of the House Ways and Means Committee released the long-awaited tax bill—the proposed Tax Cuts and Jobs Act.  Should it, or something anything like it, be signed into law, the wide-sweeping legislation would represent a momentous overhaul of deductions, brackets, and other tax items, the most significant since 1986. Here’s an 82-page CliffsNotes (TM) version

One item that our industry has been following closely is how tax reform would affect section 1031 tax-deferred exchanges, and in turn, syndications designed to accommodate tax deferred real estate investment. Many will be pleased to learn that the proposed bill does not repeal or limit in any way a taxpayer’s ability to execute a section 1031 exchange for real property as provided for in the current version of Internal Revenue Code. In other words, the 1031 regime as it relates to real estate would remain unaltered under the bill should it become law. Tax deferred exchanges of like-kind personal property under 1031 are not as lucky. The proposed law removes all references to personal property in an amended 1031, making them ineligible for tax deferred exchange under the section. (Thus, the Act strikes subsection (e) of section 1031, which had helpfully clarified that livestock of different sexes are not like kind…)

Of course, the Tax Cuts and Jobs Act is just a proposal in the House of Representatives, and the Senate bill—and any final text signed into law by the President—could have different implications for section 1031.  But if the House bill is a bellwether, the text is a welcome sign indeed to many in the syndicated real estate industry. We should be grateful for the lobbying efforts of ADISA, IPA, and others.