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1031 Exchange, a Cherished Real Estate Tax Break, Faces Extinction

A much-loved tax advantage in the commercial real-estate industry is on the chopping block even as chances dim for the passage of a broad federal tax overhaul this year.

Why? If a sweeping bill doesn’t get traction in Congress, there is still a decent chance a narrower tax rate cut will get passed, according to lobbyists and Capitol Hill officials working on tax legislation.

To finance such a rate cut, some in Congress have in their sights what’s known as the 1031 exchange provision, which enables sellers of real estate and other assets to defer capital-gains taxes by reinvesting the proceeds in “like-kind” properties.

Say an investor sells an apartment building for a $10 million profit. If he or she reinvests the proceeds in a strip mall or another commercial property, the investor doesn’t have to pay taxes on that capital gain at that time.

The 1031 exchange could effectively have ended as part of the tax-overhaul plan proposed last year by House Republicans, which gained traction after Donald Trump was elected President. But that plan—named “Better Way”—would have included other provisions that would have made it more palatable for the real-estate industry.


Peter Grant and Richard Rubin, Wall Street Journal  June 13, 2017


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