Popular RE tax break 1031 exchange may be wiped out

Some in Congress want to drop the like-kind provision to finance a tax cut

June 13, 2017 10:55AM

The 1031 exchange, a tax break used extensively in the commercial real estate industry, could disappear if a lower tax rate is passed by Congress.

The tax break gives sellers of real estate and other asset types the opportunity to defer capital gains taxes by reinvesting in “like-kind” properties. But lobbyists and Capitol Hill officials working on tax legislation have told the Wall Street Journal that, even if a sweeping federal tax overhaul doesn’t go ahead this year, a more modest tax-rate cut may still wipe out the tax advantage.

Some members of Congress are looking at cutting the 1031 exchange to finance the rate cut, according to the newspaper. The exchange was threatened by the House Republicans’ tax-overhaul plan dubbed “Better Way,” but that particular plan included some attractive provisions for the real estate industry. Real estate lobbyists now claim that, with Better Way less likely to be passed this year, the industry may now lose the break without any sweeteners.

Like-kind exchanges are used in between 10 and 20 percent of commercial real estate transactions, according to advisory firm Green Street.

Jeffrey DeBoer, chief executive of lobbyist group Real Estate Roundtable, told the Journal that losing the 1031 exchange would “cause a lot of transactions not to occur.”

The Trump administration revealed its tax reform plan in April, proposing massive cuts to individual, corporate and other business taxes.

The plan may render the country’s mortgage-interest tax deduction useless to as many as 25 million Americans, according to analysis last month from property-data provider Trulia.  [WSJ]Miriam Hall