Killing the 1031 Exchange Would Hurt Middle Class and Older Property Owners, SeekingAlpha Explains

Jan 23rd, 2017

"Congress is considering eliminating and/or repealing certain business expense deductions, including net interest expense and IRC 1031 tax-deferred exchanges...

Section 1031 Exchanges have been a part of the Internal Revenue Code since 1921 and have historically been used by sellers of commercial real estate to defer federal and state capital gains taxes as well as recapture taxes...

...the vast majority of 1031 transactions are generated from middle class taxpayers exchanging out of a small property like a single family rental property or vacation home, held for investment...

Total CRE property values are estimated to be $10 trillion and include four major categories; office, retail, multi-family (apartments) and industrial. Annual transaction volume is between $400 billion and $500 billion and an estimated 30% of annual volume is transacted using 1031 Exchanges...

Clearly, both investor types will be hurt by the proposed repeal of 1031 Exchanges but the impact will be far worse for older investment property owners that planned to sell their existing property and purchase a replacement property using a tax deferred exchange. If proposed legislation passes, these investors will pay taxes on all prior capital gains and depreciation recapture; losing productive capital that would have otherwise generated additional retirement income...

To make matters worse, commercial real estate owners may be dealt a double whammy if congress eliminates the deduction for mortgage interest..." [read more]

http://seekingalpha.com/article/4032231-art-repeal-law-unintended-consequences