CCIM Institute Regional Vice President Craig Fernsler, CCIM, GRI, SRES, is meeting with influential members of the U.S. Congress in Washington, D.C., to discuss the strong economic stimulus that Internal Revenue Code Section 1031 exchanges provide to the U.S. economy. Fernsler, along with several members of the National Association of Realtors, is countering the recommendation from the Obama administration’s budget for fiscal year 2016 to limit the deferral provisions of Section 1031.
It's been over a year we have been hearing 1031 exchanges are at risk by Washington. However, there are now three legislative proposals currently under consideration that recommend eliminating or severely restricting the application of IRC Section 1031, from both sides of the isle. This recent activity elevates the immediacy of this issue.
- * The Obama Administration FY 2016 Proposed Budget limits the deferral of gain for real estate exchanges to $1,000,000 per taxpayer, per year. Additionally, the FY 2016 Budget completely repeals exchanges for artwork and collectibles.
- * House Ways & Means Committee Chairman Paul Ryan announced publicly last week that he intends to introduce a comprehensive tax reform bill prior to the August Congressional recess. The proposal he inherited from the former Ways & Means Committee Chair Dave Camp included complete repeal of Section 1031.
- * Senate Finance Committee Chairman Orrin Hatch stated that June/July is the time to do a tax reform bill and his five Committee Working Groups are charged with providing their input to him by the end of April. The proposal he inherited from the former Senate Finance Committee Chair Max Baucus suggests either a repeal of Section 1031 or a limitation on the like-kind standard to a "similar or related in service or use" standard.
Currently, no law or regulation is pending in Congress, but reforming business tax laws recently has been discussed on both sides of the aisle.
“The 1031 exchange creates momentum in real estate transactions and benefits the overall economy,” says Fernsler, vice president of Investment Services at KW Commercial, in Blue Bell, Pa. “Legislators may not fully understand the impact of the change would have on the economy. Every day, I live and breathe the 1031 exchange.
“Based on my knowledge and experience, ending this tax deferral could dampen our economic recovery. For example, every 1031 exchange includes several professionals who facilitate it and charge fees that are taxed as regular income, which further stimulates the U.S. economy. Additionally, the 1031 exchange stimulates the economy without any government stimulus.”
A fixture in tax law since 1924, 1031 like-kind exchange rules permits the deferral of capital gains taxes if the taxpayer fulfills the requirements and transacts both a sale and a purchase within 180 days. NAR believes the current law provides investors with the flexibility needed to manage their real estate portfolios. The 1031 is a tax deferral, not a tax elimination.
Fernsler is scheduled to meet with Rep. Patrick Meehan, R-Pa.; Sen. Patrick Toomey, R-Pa.; and Sen. Tom Carper, D-Del.; who serve on the House Ways and Means, and the Senate Banking and Finance committees respectively. He expects to return and meet with more U.S. Congress members May 11–16, for CCIM Institute’s 2015 Capitol Hill Visit during the Realtors Legislative Meetings & Trade Expo in Washington, D.C.