Congress "must ensure we do not eliminate economic catalysts", argues The Hill

Jan 26th, 2017

"Put simply, a like-kind exchange enables a business or investor to defer—not dodge—the capital gains tax on a non-personal asset sale, provided that the capital is reinvested in a comparable asset within a prescribed time period. This practice of rolling over and reinvesting proceeds is actually a core catalyst of domestic real estate activity and helps fuel our entire economy.

When conceptualizing the value of like-kind exchanges, think about how the IRS’s home sale exemption permits homeowners to defer capital gains taxes generated by selling their house. This homeowner tax provision encourages individuals and growing families to apply the proceeds from their home sale to the purchase of a new house. The home sale tax deferral spurs real estate transactions, which like 1031 commercial property exchanges, generate local transfer taxes and provides employment for the following small businesses: appraisers, accountants, contractors, mortgage bankers, real estate brokers as well as both law firms and title companies (just to name a few).

If a home seller had to write a check to pay state and federal capital gain taxes at the time of a sale instead of deferring the taxes, owners may choose not to sell, which would be devastating to the housing market with a consequential loss of employment opportunities for many small businesses.

Similarly, if commercial property owners were forced to pay capital gain taxes at the time of sale, a number of people would not sell, resulting in a loss of local transfer taxes and the loss of income for small businesses. Make no mistake about it; most tax free exchanges occur because commercial property owners want to move up to a larger property and reinvest their capital just like homeowners, not because they need to sell. People who elect tax free exchanges are voluntary sellers who, in many cases, will not sell if the 1031 program is eliminated.

In attempting to advance reform that will simplify our federal code and help reduce the deficit, it is understandable that leaders in Washington want to evaluate all existing tax policies. However, Congress must remain deliberate and measured throughout this process to ensure we do not eliminate economic catalysts within our existing code."

The Hill