4A — June 12 - 25, 2015 — M id A tlantic
Real Estate Journal
www.marejournal.com
M id A tlantic R eal E state J ournal
nvestors who see Sec- tion 1031 as a useful tax strategy need to take ac- By Pamela A. Michaels, Esq. and Scott R. Saunders, Asset Preservation, Inc. Tax reform and Section 1031: “Congress threatens to eliminate exchanges” I tom lines of many, especially those in the Northeast and Midatlantic where real estate
considering adopting aspects of Dave Camp’s recent tax reform bill, which included a proposal to completely eliminate Section 1031 tax deferred exchanges. The Senate Finance Committee Chair, Orrin Hatch (UT), is also working on a tax reform bill that will likely include eliminating 1031 exchanges. Like-kind exchanges ben- efit millions of American investors and businesses every year by encouraging businesses to expand and by moving dollars within the U.S. economy. Without
the tax deferral benefit that 1031 exchanges provide, reinvestment by all inves- tors would be inhibited, real estate values would decline and the U.S. economy would suffer. The repeal of Sec- tion 1031 would impose a targeted tax increase on economically sound commer- cial real estate investment and adversely impact New York City and the Northeast generally where real estate investments are the basis for significant wealth. Ernst & Young 1031 ex- change study supports
the economic value of exchanges A recent Ernst and Young study, The Economic Im- pact of Repealing Like-Kind Exchange Rules, finds that the repeal of Section 1031 would result in less federal revenue, shrink the economy by $8.1 billion, discourage investment, create an unfair concentration of negative impacts in certain industries, and is at cross-purposes with the goals of tax reform. The analysis finds that the re- peal of Section 1031 would increase the cost of capital in the economy, even when com- bined with lower tax rates. The higher cost of capital would discourage business investment, to the detriment of the overall economy. Re- pealing Section 1031 would subject many businesses to higher tax burdens, resulting in longer holding periods for capital assets, greater reli- ance on debt financing and less efficient deployment of capital. Although it is argued that the revenue generated by the repeal of Section 1031 could be used to lower the corporate income tax rate, many affected businesses are non-corporate, pass-through entities which would not receive this benefit. For an overview of this study go to: www.1031taxreform. com/1031economics/. Take action now to sup- port 1031 exchanges Contact your congressional representatives using the link below and send a message to Congress that Section 1031 provides a powerful economic tool for stimulating the econ- omy. It only takes 2 minutes to voice your opposition to any repeal of section 1031. Pamela A. Michaels is an attorney and vice Ppresi- dent of Asset Preserva- tion, Inc., a nationwide Qualified Intermediary and wholly owned subsid- iary of Stewart Title. Scott R. Saunders is se- nior vice president with Asset Preservation, Inc. Scott has an extensive background in Inter- nal Revenue Code §1031 tax deferred exchanges, having been involved in structuring thousands and thousands of §1031 ex- changes during his twenty six years in the exchange industry. n
tion now. If action is not taken imme- diately, Sec- t i on 1031 exchanges may be abol- ished or its application severely lim-
values have i n c r e a s e d significant- ly in recent years. Paul Ryan (WI ) , t h e Chair of the House Ways & M e a n s
Pamela Michaels Scott Saunders
ited soon. Given the number of investors in the northeast performing Section 1031 ex- changes routinely, this would significantly affect the bot-
Committee, has said he in- tends to pass a tax reform bill through the House prior to the Congressional recess in August. It appears he is
Exchange Smart. Security you can bank on
Pamela Michaels, Esq. Vice President / Division Manager Manhattan: 866.317.1031 | Long Island: 866.394.1031 pmichaels@apiexchange.com | apiexchange.com Call for a complimentary consultation.
A National IRC §1031 “Qualified Intermediary”
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