Photo of Todd R. Pajonas

MELVILLE, NY—You might think that the current efforts to repealor reform the Affordable Care Act have nothing to do with realestate investing. However, health care reform is the last bridgethat Congress needs to cross before they can turn their attentionto comprehensive tax reform. Once Congress moves on to taxreform, there is the potential danger that IRC section 1031 taxdeferred exchanges could be eliminated to pay for tax cuts and thatcould prove devastating to the real estate market. An IRC §1031 taxdeferred exchange allows real estate investors to defer the capitalgains tax they would normally recognize upon the sale of theirbusiness or investment property so long as they purchase realestate for an equal or greater value.

What we know as the modern era of 1031 exchanges started withthe Tax Reform Act of 1986. However, exchanges of property, in oneform or another, have been allowed since 1921—almost 100 years.Current efforts to repeal IRC §1031 began with the 2010 VolckerReport which advocated its elimination. In the intervening yearsboth Democrats and Republicans found at least one area of commonground, with some members of each party calling for itselimination. President Obama floated a more business friendlyplan in 2015 seeking to limit the capital gains tax deferral to$1 million instead of an outright repeal. More recently, inorder to pass a “revenue neutral” tax plan, President Trump and theRepublicans have explored the elimination of 1031 exchanges inorder to “pay for” other tax cuts.

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