By: Anya Coverman, Senior Vice President of Government Affairs and General Counsel at the Institute for Portfolio Alternatives
Section 1031 and like-kind exchanges have been an integral part of our country’s real estate fabric over the past 100 years. However, this year, President Biden’s tax proposals include eliminating like-kind exchange treatment for gains greater than $500,000 for single taxpayers and $1 million for married taxpayers.
While our industry plays an important role in the effort to preserve like-kind exchanges as we know them today, the impact of limiting Section 1031 stretches much further. Our partnership with groups representing multiple interests – from foresters to hotel owners to farmers – who also have a vested interest in preserving like-kind exchanges in their current form is the driving force of our advocacy work.
As the conversation to repeal like-kind exchanges continues in Washington this summer, our industry is engaged in daily efforts with a coalition of groups, orchestrating a comprehensive campaign to protect this important piece of tax code.
When engaged in advocacy work, individuals and organizations look to one another to establish mutually agreeable goals, including shaping public policy. The role and importance of a well-organized coalition is critical in effective policy advocacy. As the old adage goes, “there is always strength in numbers.”
The foundation of our coalition in this effort is no different; we are a wide-ranging group of organizations operating in unity to preserve Section 1031 and like-kind exchanges. Our coalition gives us the opportunity to create a national voice, increase access to resources and establish alliances that can forge collaborative bonds across racial, socio-economic and other traditional demographic divides. These voices are critically important as the [Biden] administration continues to focus on income and wealth inequality.
To date, our coalition has participated in more than 40 meetings with lawmakers on the House Ways and Means Committee and the Senate Finance Committee, including the Committee tax writing staff to discuss the importance of preserving like-kind exchanges in their current form.
The coalition coordinated a recent congressional staff briefing moderated by Jeff DeBoer of the Real Estate Roundtable, and including the mayor of Naperville, Illinois, Steve Chirico; Syracuse University Professor Milena Petrova; Marcus & Millichap CEO Hessam Nadji and Ernst & Young Co-Director Robert Carroll.
Finally, the coalition has engaged in numerous grassroots efforts, including constituent outreach to elected officials, grass tops efforts to encourage local business and community leaders to speak out to elected officials as well as targeted advertising designed to engage legislators and policymakers directly.
The Power of Personal Experiences
Our advocacy efforts also rely on the powerful real-life examples, including those from farmers and ranchers who use Section 1031 to relocate, consolidate or improve their operations without diminishing their cash flow and retirees who are able to exchange their most valuable asset, their farm, ranch or commercial assets they operated their small businesses from for other real estate without diminishing the value of their life savings.
Through our coalition’s efforts, we’ve been able to pull together a wide-ranging set of viewpoints that underscore the impact of Section 1031.
For example, one story spotlights a widow whose husband owned an auto service business in Southern California that she was forced to sell when her husband passed away. The real estate portion of the business formed a large percentage of the sale and her net worth.
By reinvesting the capital gains from the sale of the real estate, the widow now receives monthly income from rental income earned from the replacement properties she invested in, significantly improving her retirement.
In whole, she’s an example for all Americans without the benefits of company-sponsored 401(k) or other qualified plans, who rely on reinvested proceeds utilizing a like-kind-exchange for their retirement.
Our Industry’s Role
Importantly, the success of our coalition fundamentally depends upon the dedication and organization of our industry. Without the voices of our industry’s leaders, distribution partners and financial advisors as well as individuals who benefit from like-kind exchanges, the efforts of our entire coalition will fall short.
Now more than ever, your voice is critical to our fight to preserve Section 1031 and like-kind exchanges. At such a pivotal juncture for our economy, limiting Section 1031 will spur stagnation, not growth, with the potential to harm many vulnerable segments of American families and communities, and it’s extremely important that your representatives in Washington hear directly from you. Notably, this is the only tax proposal that is industry “specific” as opposed to industry agnostic in the Administration’s Build Back Better program.
Through a grassroots effort led by the Institute for Portfolio Alternatives, individual advocates have sent over 10,000 letters to almost 500 legislators, including all U.S. Senators. Sustaining this effort throughout the summer is absolutely critical. For those whose representatives serve on House Ways and Means Committee and the Senate Finance Committee, reaching out directly to share your point of view is even more paramount.
On our website dedicated to 1031 like-kind exchange advocacy, you can directly engage with your members of Congress to support and preserve this important tax provision and find the latest research and commentary on Section 1031 from across the industry.
Anya Coverman is senior vice president of government affairs and general counsel at Institute for Portfolio Alternatives where she leads all public policy and advocacy efforts.
The views and opinions expressed in the preceding article are those of the author and do not necessarily reflect the views of The DI Wire.