The New Tax Bill

As you might imagine, we were on pins and needles as the tax bill was working its way through the process. Section 1031 was slated for total elimination; however, when the bill started to be pulled together in Washington there was so much push back from every national organization that deals with commercial/investment real estate that in the end, there was partial, but important victory for our company, our industry and most importantly, our clients!
Here is where Section 1031 is with the new tax bill:
1) Section 1031 for Real Property is unchanged, with no modifications to the current code.
2 Starting Jan 1, 2018, all personal property assets (such as autos, trucks, heavy equipment, farm machinery, artwork, collectibles and intangibles like fast-food restaurant franchise licenses) will no longer qualify for Section 1031 tax-deferral treatment. Clients could benefit from an exchange of a personal property asset, they can still qualify if a) they entered into the exchange before year-end and b) either the relinquished property is sold OR the replacement property is acquired by the taxpayer by 12/31/17.
Any personal property associated with the real estate will no longer be exchangeable. So, if there a B&B, hotel, Inn, that is being relinquished, clients can no longer exchange the personal property for like-kind personal property if they buy another hospitality property.
This applies to other business transfers as well that contain a personal property component. There may be a way to rapidly depreciate the FF&E component in year one, but I’m still learning about this aspect of the bill, and will let you know what we find out.
3) There was no change in the step-up in basis upon death, which is good for our serial Exchangors who are using 1031 as part of their estate planning strategy.
4) There where no changes to capital gains rates.
5) The 3.8% Affordable Health Care Act tax is still in place for individuals, and can still be deferred.

From our team to you, we wish you the very best in 2018 and we look forward to working with you in the coming year.

2 Responses to The New Tax Bill

  1. gene reardon April 25, 2018 at 10:10 am #

    Thinking of a 1031, wondering if you have time for a question.

    Sales price $800,000 Rental property. Basis 0. Depreciation $200,000
    partial transfer for a rental property at $250,000

    We are in a low tax bracket so our gain will be taxed at different rates; 0, 15, 20, 25, plus medicare surtax.


    ​ Will doing a partial 1031 simply reduce our capital gain by $250,000 or will it be more complicated – that is apportioned in some way between the different brackets. That’s important because if the $250,000 would be taxed at the highest rate, it would make more sense to do the transfer.

    Will the depreciation recapture be apportioned proportionally between the boot and the transfer? Or could the entire $200,000 be apportioned to the received property.

    Will we be able to receive the boot after we purchase the replacement property or will there be a 180 day holding period.

    Thanks. Gene.

    • John Hamrick April 25, 2018 at 10:12 am #

      Hello Gene:

      Thanks for your question. We will respond via an email.

      -EWI Team

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