How Much Longer for Section 1031 Exchanges?

In the budget proposal just released by President Obama, he calls for a cap on the amount of gain that could be deferred under Section 1031.  This cap would be $1 million each year indexed for inflation.  The tax reform proposals released by both the Senate and the House call for major changes to like-kind exchanges.

Under the Senate proposal released late last year, it would eliminate direct Section 1031 exchanges.  Instead, all sales of fixed assets in a pool would be used to reduce the pool amount and if it went negative.  At that point, the taxpayer would report the negative amount as gain.  For sales of real, no Section 1031 gain deferral would be allowed.

In the House proposal released last week, it eliminates Section 1031 gain deferral completely.

The real estate industry has a very effective lobby, however, when you have the President, the House and the Senate asking for major changes to the tax deferral rules, you must be concerned.  Most likely, nothing will happen this year, but in 2015, watch out.

We will keep you posted.

Paul Neiffer, CPA