The Land Report

Spring 2017

The Magazine of the American Landowner is an essential guide for investors, landowners, and those interested in buying or selling land. The award-winning quarterly is known for its annual survey of America's largest landowners, The Land Report 100.

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T he legislative outcome is quite clear: " Tax reform will pass … sooner rather than later," says Norquist. "We're not discussing something that's theoretical. It is close to a level of agreement, closer than it appears from the outside." Although tax reform may be a certainty, many of the particulars of legislation are still being hammered out. Given his status as a thought leader in tax policy, Norquist has heard from large numbers of stakeholders. Many insist that Section 1031 like-kind exchanges must stay in the Internal Revenue Code. Norquist agrees. Norquist says "There is time and a good argument for either restoring or maintaining 1031, particularly on the land basis. People who know about the power of Section 1031 from their own experience need to commu- nicate with their congressman, senators, and the Trump administration as soon as possible. It [tax reform] is happening, and there is no time to waste." Without Section 1031 as a vehicle to defer capital gains taxes, landowners will be especially disadvantaged. To make matters worse, in addition to the possible elimination of the Section 1031 exchange, the House Republican Blueprint imposes a double whammy on landowners with its call to eliminate the net interest expense deduction. In return, the Blueprint proposes an allowance of immediate expensing for real property improvements (but not land). M any Blueprint proponents assume that lower rates and immediate expensing make up for the elimination of Section 1031 and interest deductibility. This assumption is a mistaken one; it overlooks the tremendous value of the land. According to commercial REALTOR surveys, land accounts for 30 percent of the value of improved real property and can account for 80 to 100 percent of agricultural and recreational land. If landowners have no tax deferral vehicle, the lock-in effect will be dramatic. Instead of improving or upgrading farming and ranching operations, or stream- lining existing holdings by consolidating tracts, many landowners will simply elect not to sell. The whole point of tax reform is to encourage growth, which is precisely what Section 1031 accomplishes. A 2015 Ernst & Young macroeconomic study concluded that a repeal of Section 1031 would result in a contraction of GDP equal to $8–$13 billion per year. A diverse coalition of 91 associations has called on Congress to retain Section 1031. That group includes nearly every REALTOR-affiliated group, Farm Bureau and associated farm groups, conservation groups, manufacturers, and the US Chamber of Commerce. Says Norquist, "The bus has already left concerning some parts of tax reform. We're not there on 1031. It need not be left off the table, and there are strong arguments for keeping it that Republicans can and do understand. We don't want to be making cap- ital gains taxation more onerous in any way. It's a principled argument we're making on 1031, not simply an industry-specific or re- gional issue. They will throw a lot of babies overboard in order to make [tax reform] float. We want to make sure 1031 is not one of those. People who recognize from their own experience the importance of 1031 should communicate with and inform their congressmen." To express your support for the retention of Section 1031, please reach out to your elected representatives. Alternatively, you can email a message to them directly by visiting www.1031taxreform.com/take-action. 24 The LandReport | S P R I N G 2 0 1 7 LANDREPORT.COM "People who know about the power of Section 1031 from their own experience need to communicate with their congressman, senators, and the Trump administration as soon as possible. " — Grover Norquist, Americans for Tax Reform

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