Since 1921, U.S. tax law has recognized that the exchange of one investment or business-use property for another of like-kind results in no change in the economic position of the taxpayer, and therefore, should not result in the immediate imposition of income tax. The exchange rules permit the deferral of taxes, so long as the taxpayer satisfies numerous requirements and consummates both a sale and purchase within 180 days. Real estate investors and commercial real estate practitioners place a very high priority on retaining the current like-kind exchange rules.
None at this time.
What is the fundamental issue?
Since 1921, U.S. tax law has recognized that the exchange of one investment or business-use property for another of like-kind results in no change in the economic position of the taxpayer, and therefore, should not result in the immediate imposition of income tax. The like-kind exchange rules permit the deferral of taxes, so long as the taxpayer satisfies numerous requirements and consummates both a sale and purchase of replacement property within 180 days. Real estate investors and commercial real estate practitioners place a very high priority on retaining the current like-kind exchange rules.
I am a real estate professional. What does this mean for my business?
The exchange rules often provide a real estate professional with an opportunity to facilitate two transactions: the sale of the relinquished property and the purchase of the replacement property. Any curtailment of the exchange rules will make both pieces of exchange transactions more difficult to conclude and would mean that many transactions would not take place. The like-kind exchange technique is among the most important of all tax provisions for real estate investors and commercial real estate professionals.
NAR opposes any change that would undermine the deferral mechanisms associated with exchanges or lead to fewer transactions.
The like-kind exchange technique is fundamental to the real estate investment sector. The current law provides investors with a great deal of flexibility in managing their real estate portfolio. Real estate is essentially an illiquid asset that requires substantial commitments of cash. Flexibility is needed in order to assure the free movement of property and capital. This, in turn, results in economic growth and job creation.
No bipartisan legislation related to Section 1031 was introduced in the 114th Congress or so far in the new 115th Congress (which began in January 2017). However, identical bills were introduced in the 114th Congress in both the House and Senate that would limit the use of the like-kind exchange deferral as a way of partially offsetting the cost of provisions that would shore up multiemployer pension plans. Support for these bills was limited to a relatively small number of Democrats, which indicates that there is not much chance of this legislation moving forward in a Republican-controlled Congress.
Of more concern, however, is the fact that Members of Congress in both Houses and both parties continue to express the desire to overhaul the tax system, with some leaders indicating that "everything is on the table." A staff discussion draft released by former Finance Committee Chairman Max Baucus (D-MT) in November 2013 proposed repealing Section 1031. A similar tax reform draft plan was released by former Ways and Means Committee Chairman Dave Camp (R-MI) in February 2014, which would also repeal Section 1031.
The likelihood of comprehensive tax reform moving toward enactment has gone up considerably with the election of Donald Trump and another Republican-controlled Congress. So far, none of the leading tax reform plans explicitly state that Section 1031 Like-Kind Exchanges are targeted for repeal. However, these plans are not fully developed and tax policy experts believe that as tax reform moves through the legislative process, more provisions will be eliminated to help keep tax reform revenue neutral. And because 1031 is generally perceived by much of the population and even some policymakers as an unwarranted “loophole” that is only available to the wealthy, the provision is thought be vulnerable to attack.
NAR is working with other interested stakeholders to oppose the repeal or limitation of the like-kind exchange provision and to educate Members of Congress and their staffs on the importance of this provision to the economy. For example, NAR is an active member of two separate coalitions devoted to preserving the 1031 like-kind exchange. These coalitions have funded two separated studies on the impact that repealing Section 1031 would have on the economy and on the real estate sector. Moreover, the coalitions continue to have meetings with Members of Congress to explain the importance of tax-deferred exchanges in their states and districts. Also, NAR lobbyists often mention the importance of keeping 1031 when meeting with Members and staff on other issues.
Federal Taxation Committee
Commercial Federal Policy Committee
NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require a password.
1031 Exchanges: The Basics
What is a 1031 Tax-Deferred Exchange? (The Balance, July 3, 2019)
1031 Exchanges: 10 Things to Know (Investopedia, May 17, 2019)
What is a 1031 Exchange and What Do You Need to Know in 2019? (The Street, March 14, 2019)
How to Do 1031 Exchanges to Defer Taxes (The Balance, Jan. 9, 2019)
Making the 1031 Exchange: Is Swap Till You Drop Always the Best Motto? (Kiplinger, Nov. 6, 2018)
Rules, Forms, & Guidelines From the IRS
2019 Instructions for Form 8824 (United States Internal Revenue Service, July 8, 2019)
What is IRS Form 8824: Like-Kind Exchange (TurboTax, 2019)
Like-kind Exchanges now Limited to Real Property (United States Internal Revenue Services, Nov. 19, 2018)
1031 Exchanges for REALTORS®
This Twist on 1031 Exchanges Opens Opportunities (Chicago Agent Magazine, Aug. 2, 2019)
1031 Exchanges Save IRS & State Taxes, Even Leaving California (Forbes, Aug. 1, 2019)
The Real Estate Investor’s Guide to Reverse 1031 Exchanges (Bigger Pockets, June 3, 2019)
Like-Kind Exchanges – Real Estate Tax Tips (United States Internal Revenue Service, April 30, 2019)
1031 Exchange in Real Estate (Cincinnati & Northern Kentucky Real Estate Blog, April 18, 2019)
Like-Kind Exchanges Help Build Communities (Forbes, March 21, 2019)
Understanding the Differences Between Opportunity Zones and 1031 Like-Kind Exchanges (MCM CPA & Advisors, March 1, 2019)
Consider your Options: Reverse 1031 Exchanges for a Seller (Boston Business Journal, Feb. 4, 2019)
Delaware Statutory Trusts (DSTs)
Simplify Rental Property Ownership with Delaware Statutory Trusts (LSL CPAs and Advisors, June 17, 2019)
Delaware Statutory Trust (The Balance, Jan. 25, 2019)
The Growing Appeal of Delaware Statutory Trusts (GlobeSt.com, July 5, 2018)
Guide to 1031 Exchanges: Basics, Resources & Intermediaries (BiggerPockets.com)—Quick overview of how 1031 exchanges work, with links to recommended resources and a list of qualified intermediaries.
Federation of Exchange Accomodators (FEA)—Professional organization for exchange specialists. Includes directory of exchange companies & specialists around the U.S.
eBooks & Other Resources
Our eBooks collection contains a plethora of both audio and electronic books for learning a diversity of foreign languages and cultural etiquette standards. Below you will find a sampling of materials available; to identify additional materials visit our Library Catalog Advanced Search page and search for Subject: International or Subject: Foreign.
Books, Videos, Research Reports & More
The resources below are available for loan through Member Support. Up to three books, tapes, CDs and/or DVDs can be borrowed for 30 days from the Library for a nominal fee of $10. Call Member Support at 800-874-6500 for assistance.
Building Wealth Through 1031 Exchanges, (Exchange Facilitator, LLC, 2006)
1031 Exchanges: How They Work, (Professional Exchange Accommodators, LLC, 2005)
The Tax-Free Exchange Loophole, (Wiley, 2005)
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