Code Sec. 1031 after the 2017 Tax Act
13 Pages Posted: 17 May 2018
Date Written: May 15, 2018
The Tax Cuts and Jobs Act of 2017 changed Code Sec. 1031 and other provisions that may affect Code Sec. 1031. This Article examines those changes. Code Sec. 1031 now applies only to real property, so taxpayers must consider whether exchange properties are real property and like kind. Code Sec. 1031 does not have an established definition of real property, so its scope will be uncertain until further guidance emerges. Until then, taxpayers may look to definitions of real property in other provisions of the Code. The Article presents a table comparing the various other definitions of real property, showing that tax law does not have a unified definition of real property. The new act also includes a deduction of qualified business income under section 199A, which is subject to a limit based upon the unadjusted basis of property held in a business. The Article examines how exchanges under Code Sec. 1031 may affect the computation of unadjusted basis of replacement property. Finally, the Article considers whether the repeal of technical terminations and the prohibition of exchanges of partnership interests may affect exchange structures.
Keywords: Section 1031 exchange, like-kind exchange, unadjusted basis, TCJA, tax cuts and jobs act, exchanges of partnership interests, section 199A, qualified business income
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