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

...

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.

Now real estate lobbyists say the Better Way plan is getting bogged down and it is looking like the real-estate industry might have to take the medicine without the spoon of sugar to help it go down even though they would benefit from the lower rates.

...

real estate executives say getting rid of 1031 exchanges would be devastating for the economy as well as their industry. Like-kind exchanges are used in 10% to 20% of commercial real-estate transactions, according to Green Street.

They also have sparked the creation of a cottage industry of firms that pool 1031 exchange investments for smaller investors. If the provision is eliminated, "it would cause a lot of transactions not to occur," said Jeffrey DeBoer, chief executive of the Real Estate Roundtable.

The economic impact would ripple throughout the economy because investors who acquire real estate through 1031 exchanges are more likely to invest in those properties than those that pay cash. In such trades, they typically don't have to reach into their pockets, Mr. DeBoer explained.

...

The 1031 provision of federal tax law applies to a wide range of assets--including cars, planes and patent rights. Real estate accounts for 36% of the exchanges, according to Ernst & Young LLP. In 2014, the Joint Committee on Taxation estimated that repealing like-kind exchanges would raise $40.6 billion in additional tax revenue over one decade.