Pokeno Property Management

What if President Biden Repeals Section 1031?


As we write in early 2021, among the particulars mentioned by Democrat lawmakers as a means of raising taxes is the repeal of or new limits on the like-kind exchange provision.

Feb 26th 2021
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There has been some “deterioration” of IRC Section 1031 in recent times. We refer to the 2017 Tax Cuts and Jobs Act (TCJA) elimination of like-kind exchange treatment for exchanges of personal property.   

The basic rationale of IRC Section 1031 in its current form is the absence of recognized gain, except to the extent of boot, because the owner remains invested in like-kind investment real estate.

The latest PLR on our topic, dated December 31, 2020, ruled favorably on a series of like-kind exchanges involving related parties. The IRS was persuaded that the principal purpose was not tax avoidance. Replacement properties had to be held for at least two years under Section 1031(f)(1)(C)’) (PLR 2020053007, December 31, 2020). We’ve yet to see private letter rulings on Section 1031 after President Biden took office on January 20, 2021.  

What Has Biden Talked of Doing to Like-Kind Exchanges?

The official pronouncements from the Biden administration on Section 1031 exchanges seem missing.  Commentary suggests Section 1031 was not written up, but only talked about by Biden spokespersons. 

Will the specific avenues to higher taxes include repeal or severe modification of Section 1031? The circumstances suggest some likely cut-back in Section 1031 benefits, unless the impact on the real estate industry is judged so adverse as to warrant a hands-off approach, at least in the difficult economic circumstances of early 2021.

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