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Reader socalbuyer had to send in this article about the Republicans threatening to tinker with the 1031 tax-differed exchange benefits – but who knows what will happen.  If they do eliminate the 1031s, the extra taxation on sales of investment properties would cause fewer people to sell.

Great – less inventory!

WaPo article link

Excerpts:

House Republicans are working on a proposal that, as part of an overall streamlining of the Internal Revenue Code and a reduction in tax rates, may eliminate or seriously restrict the use of tax-deferred exchanges — property swaps — under Section 1031 of the code. President Trump has identified tax revision as one of his top priorities, and legislation is expected to move quickly in the new Congress.

Loss of the ability to use an exchange would be a significant blow to “Mom and Pop” and other small-scale realty investors. According to a study posted on the website of the National Rental Home Council, there were 15.7 million rental homes in the United States as of 2015, and 99 percent of them were owned by non-institutional investors. A study by professors at the University of Florida and Syracuse University estimated that most exchanges involve relatively small properties; in 2011, 59 percent had a sale price of less than $1 million.

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.

Bottom line: If you own investment real estate and have contemplated a Section 1031 exchange, be aware: There’s a significant possibility that tax revisions could knock your plans off track. Keep a close eye on what’s happening, because it could happen fast.

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