Last week, House Republicans released a proposed tax bill, the Tax Cuts and Jobs Act, which seeks to enact the most significant federal tax reform since 1986. If passed into law in its current form, the bill would:
- Permanently lower the corporate tax rate from 35 percent to 20 percent
- Reduce the number of tax brackets from seven to four
- Eliminate the alternative minimum tax and estate tax
- Nearly double the standard deduction (from $6,350 to $12,000 for individuals, from $12,700 to $24,000 for married couples filing jointly)
- Eliminate personal exemptions as well as state and local tax deductions (but allows for an itemized property tax deduction of up to $10,000)
- Limit deductible mortgage interest on newly purchased homed to $500,000, down from $1 million
- Repeal many other deductions, including those for medical expenses, tax preparation fees, alimony payments, student loan interest and moving expenses
- Introduce a new 25 percent rate for pass-through entities such as LLCs, Sub S Corps and partnerships
Of course, many across the nation breathed a collective sigh of relief that Section 1031 exchanges involving real property have been untouched by the House GOP plan.
The Tax Cuts and Jobs Act will be presented to the House Committee on Ways and Means this week, and a vote in the House will potentially occur next week.
“Although the overall tax reform process remains relatively fluid, the lack of repeal or limitation to real property Section 1031 like-kind exchanges for real estate owners in the recently released House plan is very good news,” said Larry Sullivan, president of Passco Companies and vice chair of ADISA’s Legislative & Regulatory Committee. “ADISA and our industry partners have worked diligently over the past several years to educate members of Congress and their staffs about the importance of 1031 exchanges, and we are certainly very gratified to see that our hard work has been well received.”
Incoming 2018 ADISA president Keith Lampi, who is also president of Inland Private Capital Corporation, added, “The demand for real property Section 1031 exchanges has grown significantly over the last 10 years, and we are pleased that this powerful provision of the tax code, which supports job creation through increased transaction volume and liquidity in the general CRE market, has been preserved in the House GOP tax plan.”
The next step in the process is the introduction of a companion bill in the Senate, which is expected to occur between tomorrow and early next week. Further changes could come in conference committee when/if the bills are passed in both houses before being submitted to President Trump. ADISA will remain a vigilant participant in the process as tax reform moves forward.
“ADISA is pleased that the tremendous value real property Section 1031 exchanges provide the national economy has been recognized as we move forward in the proposed tax bill process,” said ADISA Executive Director/CEO John Harrison. “Over the course of nearly four years, beginning with our involvement in the original design of the two major industry studies which showed the great value of LKEs, members of our association and its leadership have fought hard to demonstrate the fiscal importance of like-kind exchanges especially involving real estate. We are glad those economic studies co-sponsored by ADISA and other industry organizations, which validate this importance, were taken into consideration by government representatives during the preparation of the proposed tax bill.”
John Grady, ADISA president and partner with DLA Piper, said: “ADISA could not be more thankful to its hundreds of members that became involved in the protection of Section 1031 exchanges. Many professionals took the time to contact their Congressional representative to voice their concern for the protection of like-kind exchanges, became engaged in the conversation by educating themselves at our conferences throughout the year, and participated by distributing our educational booklet describing a Section 1031 exchange.”
“A special thanks to Larry Sullivan and Catherine Bowman, vice chair and chair, respectively, of ADISA’s Legislative and Regulatory Committee and members of our board of directors, for their efforts to show the value of Section 1031 exchanges,” said Grady.
Harrison added: “While we are very pleased with the outcome for Section 1031 exchanges involving real estate under this proposed tax bill, ADISA recognizes that others have been greatly affected and further changes may still be on the horizon. We will continue our efforts to bring to light this valuable economic stimulus and encourage everyone to stay involved and to keep up on education at industry events.”
ADISA will continue to monitor the situation on behalf of its members and industry alike, and keep you informed as the situation progresses.
This article was originally published on ADISA.