March 30, 2017

By Louis Rogers, president of Capital Square 1031

Early in 2016, the Obama administration proposed a $1 million per taxpayer per year limitation on the real property gain that could be deferred under Section 1031. While that proposal is dead, the perfect storm has developed to create the potential for sweeping tax reform with the Trump administration in office and Congress under Republican control.

The Trump administration favors lowering tax rates by repealing “loopholes” to create economic growth, but has not provided any details. The Congressional Republicans have a much sharper focus in their “Blueprint for Tax Reform” that would repeal Section 1031 along with the deductibility of business interest.

Kevin Brady, chairman of the influential House Ways and Means Committee, has introduced a radical proposal for newly purchased assets that would allow taxpayers to expense (write off) 100 percent of their depreciable basis in the year of purchase. To help pay for this costly proposal, the deduction for business interest would be repealed. If “expensing” were adopted, Section 1031 essentially would be repealed, making it impossible for taxpayers to structure future exchanges.

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