The Land Report

Spring 2015

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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S P R I N G 2 0 1 5 | The LandReport 19 LANDREPORT.COM FrontGate P O L I T I C S P O L I T I C S | L A N D ' S B E S T F R I E N D | TO P T E N | I N V E S T I N G | E V E N T S O ver the past year, a variety of proposals have emerged from Congress designed to gut the tax code and create a simpler, more fair taxation framework. While many deride the U.S. tax code as "broken," many sections, including Internal Revenue Code Section 1031, function well. Section 1031 allows property owners to defer capital gains tax and de- preciation recapture when they sell business-use or investment properties and reinvest in qualifying replacement property. This process is commonly referred to as a Section 1031 or "like-kind" exchange. Currently, in both the Senate and House proposals, Section 1031 has been targeted for elimination. Additionally, the President's 2016 Budget proposes severe limits to the provision. First enacted in 1921, the like-kind exchange has served as one of the most effective and longest-standing tax code provisions. The premise behind Section 1031 is that taxpayers should be allowed to defer tax as long as they continue to invest in "like-kind" assets. Congress recognized that it is unfair to tax a paper gain when there has been no cashing out of the investment. Certain business-use and investment assets are inherently illiquid. This is especially true of real estate, a critical driver in the overall U.S. economy. For nearly a century, Congress has promoted real property ownership through such exchanges with the idea that investment should not be stifled due to fear of the tax consequences of selling. Congress Pondering 1031 The potential repeal of like-kind exchanges jeopardizes landowners and other investors. REUTERS/RICK WILKING House Ways and Means Chairman Paul Ryan sees a possible window for tax reform in 2015.

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