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ReadObama Administration Proposes 1031 Exchange Restrictions
President Obama’s 2016 budget proposal would limit the deferral on real property to $1 million annually and exclude art and collectible investments.
Section 1031 of the IRS tax code allows owners of investment properties to defer payment of capital gains taxes by reinvesting all proceeds from the sale of a currently owned property into the purchase of a new like-kind property.
The proposed budget for fiscal year 2016 would limit the amount of capital gain that can be deferred on like-kind exchanges to $1 million per taxpayer per taxable year and entirely eliminate the tax break for sales of art and other collectibles.
The administration estimates the change could bring in a total of $19.5 billion over the next decade in taxes that would otherwise be deferred. The provision would be effective for like-kind exchanges completed after December 31, 2015.
A March report from Ernst & Young, commissioned in response to legislative proposals to abolish Section 1031, concluded that repealing the exchange rules would “slow economic growth, reduce GDP, and hurt many U.S. small businesses,” and shrink the economy by $8.1 billion annually. According to the report, the higher cost of capital would “discourage business investment which adversely affects the overall economy.”
Read more at the New York Times, and the Portland Business Journal.