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Tax Reform and its Possible Impact on Section 1031 
Proposed Repeal of 1031

On February 26, 2014, House Ways & Means Committee Chairman Dave Camp released a Discussion Draft of his Comprehensive Tax Reform Proposal.  The Discussion Draft proposes repeal of IRC Section 1031 in its entirety. The language from the Discussion Draft regarding section 1031 appears below.


Sec. 3133. Repeal of like-kind exchanges

Current law: Under current law, an exchange of property, like a sale, generally is a taxable transaction. A special rule provides that no gain or loss is recognized to the extent that property held for productive use in the taxpayer's trade or business, or property held for investment purposes, is exchanged for property of a like-kind that also is held for productive use in a trade or business or for investment. The taxpayer receives a basis in the new property equal to the taxpayer's adjusted basis in the exchanged property. The like-kind exchange rule applies to a wide range of property from real estate to tangible personal property. It does not apply, however, to exchanges of stock in trade or other property held primarily for sale, stocks, bonds, partnership interests, certificates of trust or beneficial interest, other securities or evidences of indebtedness or interest, or to certain exchanges involving livestock or involving foreign property. A like-kind exchange does not require that the properties be exchanged simultaneously - as long as the property to be received in the exchange is identified within 45 days and ultimately received within 180 days of the sale of the originally property, gain is deferred.


Provision: Under the provision, the special rule allowing deferral of gain on like-kind exchanges would be repealed. The provision would be effective for transfers after 2014. However, a like-kind exchange would be permitted if a written binding contract is entered into on or before December 31, 2014, and the exchange under the contract is completed before January 1, 2017.



The like-kind exchange rules currently allow taxpayers to defer tax on the built-in gains in property by exchanging it for similar property. With multiple exchanges, gains essentially may be deferred for decades, and ultimately escape taxation entirely if the property's basis is stepped up to its fair market value upon the death of the owner.

The current rules have no precise definition of "like-kind," which often leads to controversy with the IRS and provides significant opportunities for abuse.


JCT estimate: According to the Joint Committee on Taxation (JCT), the provision would increase revenues by $40.9 billion over 2014-2023.


The FEA has been preparing for this over the past few years, educating legislators about the powerful economic value of �1031.  We have also spent the past year educating and building strong coalitions among the real estate, farming, equipment leasing, manufacturing and other industry groups that represent our clients. 


1031 CORP. will continue to keep you informed through future newsletters and special announcements. The time will definitely come when we will ask you to contact your federal legislators to tell them how you have benefited from section 1031.    

View the Full Tax Reform Plan

Installment Sales & 1031 Exchanges:

Successfully Working Together 

While it is a seller's market again, there are still plenty of instances when a buyer asks the seller to provide financing. Whether the buyer needs a swing loan until permanent financing is secured or if they are asking the seller to provide that long-term financing, seller financing can be a win-win for both the Seller and Buyer. 
 The seller, A/K/A the Exchanger, is able to get the sale closed at the price they want and could have a good investment vehicle with a steady return for an agreed upon term.  The buyer is able to secure the financing they need without losing the desired property.  If the property is held for business use or investment and the seller wishes to defer the gain through a 1031 exchange, he will need to do some planning to maximize the tax-deferral because the amount of the seller financing cannot be deferred through the exchange.  


With planning, there are several ways to successfully maximize the tax-deferral even when providing seller financing but in order to use any of these options the Note must be between the buyer and the qualified intermediary (QI) and all payments must be made payable to the QI. 


Click to Review Options

CAUTION!  You May Need to File an Extension
clock - deadline

The exchange period begins upon the sale of the first relinquished property and ends at midnight on the earliest of either the 180th day or the due date of your return, including extensions, for the tax year in which the exchange was initiated. If your 180-Day Exchange Period deadline falls AFTER the due date of your return and your exchange is not or will not be completed before the filing deadline, you MUST file for an extension of time. This extension will provide you with the benefit of the full 180 days to complete your exchange and an additional six months to file your return.


Filing your return before your exchange is complete WILL automatically end your 180-Day Exchange Period.


Individuals must file Form 4868 on or before your normal filing date to obtain the automatic extension of time. For more details regarding return extensions and applicable taxes, please consult your tax advisor. If this form is not properly filed, you will automatically end your exchange period and any replacement property acquired will not qualify for the exchange thus creating a taxable event. Once your return is filed, you cannot amend your return to include the exchange or obtain an extension of time to complete the exchange. You will be required to report the sale as a taxable event.

Advisory Regarding PA State Income Tax and 1031 Exchanges
Commonwealth of PA

A 1031 exchange is allowed under section 1031 of the Internal Revenue Code and allows the deferral of FEDERAL gain. Many states also have similar laws that allow a 1031 exchange to defer the state gain or income tax. 


Pennsylvania law does not contain a provision similar to IRC �1031, therefore property exchanges resulting in gain or income are generally subject to Pennsylvania tax. However, the Department has determined that gain or loss on like-kind exchanges does not have to be recognized at the time of the exchange if the taxpayer's method of accounting allows deferral of gain. A taxpayer must use the method of accounting that allows the deferral of gain on a consistent basis, and the method must clearly reflect the taxpayer's income. In addition, a taxpayer may not change his or her method of accounting just to obtain a tax benefit for a particular transaction, and the deferral of gain or income with respect to like-kind exchanges will remain the exception rather than the rule.  [Pennsylvania Personal Income Tax Bulletin No. 2006-07, 10/20/2006.]

Recent Taxpayer Victory in PA in 1031 Case  

Trending this Month...  

Inquiries for later this year  

Investors and business owners seems to be planning ahead and are inquiring about 1031 exchanges for transactions that will not happen until the third or fourth quarter of 2014.  This is very different from what we have seen in recent years when we received inquiries quickly followed by a request to initiate the 1031 exchange.

Wealth Building Webinars
Every Thursday, join us for one of our complementary Wealth Building Webinar Series sessions designed to help you build and preserve wealth.  Register today!
March 6th:  1031 Exchanges Made Easy 
March 13th:  Reverse & Improvement Exchanges: Preserving the Ability to Defer the Gain
March 20th:  Tax Consequences of Selling your Primary Residence or Vacation Home
March 27th:  1031 Exchange Guide for Real Estate Professionals  
Upcoming MCE Classes
Seminar (MM)

Our Margo McDonnell, CES� and Richard Heller, Esq., CCIM, CES� both have a number of upcoming continuing education courses for real estate professionals and attorneys scheduled at the Association of REALTORS� School in Malvern, PA.

Click on the course title below for dates, program descriptions and registration information.

1031 Tax-Deferred Exchanges presented by Margo McDonnell.

Taxation of Residential Real Estate presented by Rich Heller.


Message from our President

Thinking warm thoughts and looking forward to Spring!

Dear Friends, 

I know I am not alone in my hopes for this winter to end...and soon! Fortunately, while the weather has been brutal for much of the country, the commercial and residential real estate markets are hot and 1031 exchange activity continues to heat up.  

While 1031 activity is picking up, so is the push for tax reform in Washington, DC. While it is unlikely any meaningful tax reform will go anywhere when we have mid-term elections coming up, there is a real threat to the future of section 1031.  Your help will be essential as we fight to preserve section 1031 and the many opportunities it creates for business owners and investors. We will keep you informed through future newsletters and if we have any requests that require your immediate attention, we will forward as soon as possible. Your assistance will be greatly appreciated.   

Best Regards,

Structured Sales Offer 1031 Alternative

Tax-Deferral Strategy Opens New Options

A "Structured Sale" is an improved version of the traditional installment sale provisions in IRC �453. Instead of receiving a lump sum cash payment upon the sale of the property, the seller receives installment payments spread over a number of years and the gain is deferred over the life of the note with taxes only due when payments are received. A Structured Sale combines the security of a cash sale with the tax benefits of an installment sale.

 Read more about Structures Sales 


About 1031 CORP.
Serving as a nationwide qualified intermediary for 1031 tax-deferred exchanges since 1991, 1031 CORP. strives to provide a superior exchange experience for our customers and their advisors.  We provide our customers with enhanced security of funds, knowledgeable exchange professionals and a commitment to keep the exchange process simple for our customers and their advisors.  Every member of the exchange team is a Certified Exchange Specialist� and has the experience and expertise to facilitate even the most complex exchange transaction, including reverse, improvement and personal property exchanges.  Additional information can be found at www.1031CORP.com.
In This Issue
Tax Reform and its Possible Impact on Section 1031
New Revenue Procedure Allows Related Party 1031s under Certain Conditions
CAUTION! You May Need to File an Extension
Advisory Regarding PA State Income Tax
Trending this Month
Wealth Building Webinars
Upcoming MCE Classes
Message from our President
Structured Sales Offer 1031 Alernative
2013 Exchange Reporting Guide
Article Exchange

Margo McDonnell

Margo McDonnell, CES
Certified Exchange Specialist
1.800.828.1031 ext. 212
Mobile: 610.680.6896
Find me on Facebook
View my profile on LinkedIn

1031 CORP. Logo

Sue Umstead, CES 
Certified Exchange Specialist
Senior Vice President
1.800.828.1031 ext. 208
Mobile: 610.755.8520

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View my profile on LinkedIn

1031 CORP. Logo

Marissa LoCascio, CES
Certified Exchange Specialist
Senior Exchange Officer
1.800.828.1031 ext. 210
Mobile: 610.742.4351

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View my profile on LinkedIn

Rich Heller

Richard Heller, Esq., CCIM, CES
Find me on Facebook
View my profile on LinkedIn

 Bettye Matthews

Bettye J. Matthews, CPA
View my profile on LinkedIn


Joseph F. Szajnecki, CES�
2013 Exchange Reporting Guide
Download our 2013 Exchange Reporting Guide here for information on reporting your 1031 exchange, when to file your tax return, when to file for an extension and other important tax reporting assistance!


Helping you simplify the reporting of your 1031 exchange!


Article Exchange

Following are articles related to 1031 exchanges, taxes, real estate and related topics you may find of interest.  This month, all article address why the repeal of section 1031 would be bad for the real estate recovery and the economy as a while.


Dave Camp Wants to Reform your Taxes -- and Businesses Are Already Balking

Philadelphia Business Journal

February 26, 2014


Baucus Draft Hits Commercial Real Estate

National Association of REALTORS

November 21, 2013 


United States: A Disconcerting Proposal From The Senate: Proposed Repeal Of Section 1031


February 16, 2014  


Tax Reform Targets Include 1031 Property Exchanges  

The Oklahoman

December 14, 2013


Prominent Senator Takes Aim at Section 1031 Like-Kind Exchanges 


December 17, 2013


If you have an article you would like to share, please forward it to Margo McDonnell, CES� and we'll include it in next month's reading list.
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