House Republicans to Eliminate Exchanges Used to Further Environmental Protection Objectives

"House Republicans are working on a major tax reform proposal that ... may eliminate or seriously restrict the use of tax-deferred exchanges — property swaps — under Section 1031 of the code. President Donald Trump has identified tax reform as one of his top priorities, and legislation is expected to move quickly in the new Congress

In a tax-deferred exchange, owners can postpone recognition of gains on investment real estate when they swap one property for another of 'like kind.' The capital gains tax that would otherwise be due gets deferred until the owner sells the replacement property and receives cash."

"Exchanges also are used to further environmental protection objectives, such as through swaps involving conservation easements to preserve habitat and prevent future development.

To qualify for tax deferral, exchanges must follow a detailed set of IRS rules ... Fixer-upper houses and other real estate held for short periods and then flipped to new purchasers do not qualify for tax-deferred exchanges..."

"Exchange proponents, such as Suzanne Baker of Investment Property Exchange Services in Chicago, argue that most of the deferred taxes ultimately are collected when properties get sold for cash, and that exchanges stimulate economic activity — redevelopment and upgrades of properties for example — that would not occur if owners faced immediate taxes on their gains and therefore simply sat on them."

—Kenneth R. Harvey, Contract Reporter for the Chicago Tribune