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Tax Reform Just Made Land an Even Better Investment

By Chris Anderson - January 12, 2018

Investors have historically taken advantage of a provision in the U.S. tax code that allows for taxes to be deferred on the sale of an asset if the investor uses the proceeds of the sale to purchase another similar asset in what is known as a Like-Kind Exchange or a 1031 Exchange. In the past, 1031 Exchanges were allowed for real property including land and improvements as well as personal property including vehicles, machinery, equipment, etc. That has changed with the signing of the new tax law.

There has not been much written in the press so far about the impact of tax reform on 1031 Exchanges and some investors have been concerned that 1031s have been eliminated. That concern is partially warranted, but there is a silver lining for real estate investors.

With the signing of the Tax Cuts and Jobs Act, otherwise known as the tax reform bill, 1031 Exchanges were eliminated for personal property, but remain in effect for real property. Here is the actual language from the bill:

     SEC. 13303. LIKE-KIND EXCHANGES OF REAL PROPERTY.

     (a) IN GENERAL.—Section 1031(a)(1) is amended by striking ‘‘property’’ each place it appears and inserting ‘‘real property’’.

That is very good news for real estate investors since gains on the sale of real property can still be rolled into another property without having to pay taxes on the gain at the time of the sale. Because this provision now only applies to real estate, we anticipate that investment properties will become much more attractive to investors.

The rules are complex and you will need expert advice if you are contemplating a 1031 exchange. We specialize in helping buyers and sellers plan for and realize the now-unique benefits of 1031 exchanges for real estate.  We have a team of outside experts who can handle all the legal and accounting details to ensure that your transaction is successful and hassle-free.

Please give us a call if you would like more information.

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