IRC 1031 allows owners of investment property to defer capital gains taxes, on the sale of property, so long as another investment property is purchased per the rules of the IRC 1031.

Tax deferred exchanges have long been utilized by apartment complex owners to defer taxes and build their investment portfolios.  Many owners of multifamily portfolios initially bought their first apartment complexes by exchanging single family rental house(s) for multifamily properties utilizing 1031 exchanges. 

Currently, there are three federal government proposals to restrict or eliminate 1RC 1031 exchanges.  They are listed below. 

  • The President’s proposed 2016 budget limits the deferral of gain for the 1RC 1031 exchangers to $1,000,000 per taxpayer per year.
  • A draft proposal from U.S. House Ways and Means Committee Chairman Paul Ryan, expected to be released by August 2015 proposes eliminating 1031 exchanges entirely.
  • Senate Finance Committee Chairman Orrin Hatch has stated that this summer is the time to do a tax reform bill.  Discussions have included total elimination of tax deferred exchanges and severely limiting them. 

It is estimated that at least 45% of the investment real estate transactions in the U.S. are impacted by IRC 1031 exchanges.  Repealing or restricting tax deferred exchanges would cause a significant slowdown in investment property sales and negatively impact sales prices.

You may send a letter to your legislators voicing your support for keeping IRC 1031 in it’s entirety by going to www.ipx1031.com/action  

Jade Bossert is a licensed Real Estate Broker with Tierra Antiqua Realty in Tucson.  She specializes in the sale of apartment complexes.  She can be reached at tuconrealestate@mindspring.com  Reprinted with permission of the Rental Housing Journal of Arizona.