Question

Do you think the changes to 1031 which were included in H.R. 1 address the concerns?

Answer 1

First of all let us know what are the changes that are made under section 1031 and what are the concerns with section 1031.

The major change under section 1031 (Like kind exchanges) is the complete repealment of the personal property exchanges.

The major concern with section 1031 was the deferment of tax. IRS allows someone to sell the land to buy the replacement property to then defer the payment of tax until he sells the replacement propoerty. This included all the assets except money. liabilities, inventory, securities and partnership interest.

Now, because of the same many people used to sell the house for a big gain and used to purchase another house (A like kind exchange) from the gain so that he can defer the payment of tax till he sells another property. Sometimes, they did not used to sell the second property and so IRS did not get any tax on the gain. So, becasue of the same there was an ability to postpone taxes.

With now the exclusion of personal property exchange, people will have to pay taxes even if they purchase the like kind asset from the gain. So, IRS may get more tax revenue due to the same.

However, this may also result in the decrease in the investment, which will in trun decrease the GDP.

So, I do not think that repealment of the section 1031 will address the concerns.