The Future of 1031 Exchanges In A Trump Congress

Although Donald Trump has been President for less than 50 days (as I write this), certain things about him and his agenda are becoming clear: he has a very clear vision about what he wants to accomplish, and he is very determined to push his changes through. 

Tax reform is high on his agenda, and because he has a Republican majority in both the House and the Senate, it’s likely there will be some form of tax legislation proposed later this year. Since I’m a retired CPA and I make my living in the Section 1031 tax arena, I’m very concerned about the possibility of changes to this Code Section and how these changes would impact my clients. 

Let me start with a few general observations about tax legislation: what’s proposed and talked about in the beginning seldom survives to become law. The House Ways and Means Committee will propose changes to be voted on by the House. Likewise, the Senate Finance Committee will propose their own bill that will be voted on by the Senate. The House and Senate bills then go to the Joint Committee of Congress that will combine these two into one final bill that will then go back to the House and Senate to be ratified. After ratification, the bill goes to the President to be signed, after which it becomes law. 

This means lots of opportunities for additions, deletions and tweaking along the way before something becomes final. Trump and the Republicans have shown that they prefer to work in the shadows until they have a framework for a bill, rather than drafting it with media scrutiny. Another general observation is that Congress strives to make bills that are as revenue neutral as possible. If they cut taxes in one area, they then raise taxes in another so that the two balance out (at least as close as they can make them). This is the part that makes me nervous about 1031 exchanges: Trump has made it very clear that he wants to lower corporate tax rates– meaning that he’ll have to find new tax revenue to replace that lost through lower taxes. 

Section 1031 could be one of the replacement sources. This means that to replace revenue lost through lower corporate taxes, Section 1031 could be eliminated either in whole or in part. In other words, you might have to pay tax on the gain from the sale of your rental so that Apple and Microsoft can pay lower taxes on their profits. 

It appears unlikely that Congress will hold hearings on a tax bill until later this fall. Since you’ve read all the way to the end of this article, it means that the future of Section 1031 is also important to you. So please call your Congressional Representatives and Senators, and tell them that you are very worried about the future of Section 1031 and its impact on you. One-to-one contact, like a phone call, is much more powerful than a written letter or (worse still) a form letter. Ask them to add your email to their list to keep you informed if Section 1031 does end up being targeted for change or elimination. And please feel free to contact my office if we can help you in any way.

Gary Gorman is the founder and owner of 1031 Exchange Experts’ LLC, an independent national qualified intermediary. A retired CPA, Gary is the author of the best-selling 1031 exchange book: Exchanging Up!, and a contributor to numerous publications, including Forbes, The Wall Street Journal, Bloomberg’s and The New York Times. He’s also a contributing author of books by Donald Trump and Rich Dad/Poor Dad author Robert Kiyosaki. He can be reached at gary@expert1031.com, or nationwide, toll free at 866-694-0204.