[Editor's note: 1031Gateway supports the efforts of groups like www.SaveThe1031.org, which is exposing the devastation this tax reform proposal would unleash on our economy and mobilizing Americans to make their opposition known to Congress in order to stop this bill. Please visit www.SaveThe1031.org and fill out their form to directly send individual letters to your representative and senators in Congress, urging them to fight for the 1031 exchange.]
Small businesses, farmers and others need interest deductions and Section 1031
From my analysis of these provisions, the largest corporations with lesser need to finance their businesses with debt capital will be huge winners. Apple for example has almost no interest expense and a 10% drop in tax rate would save them $3 billion in first year based on their last financial statements: this is without assuming any benefit to them of immediate expensing. Small family businesses, farmers, real estate investors and new businesses that need debt capital to grow their businesses and provide good jobs will be hurt significantly.
1031 exchange has been available for nearly a century
The 1031 exchange concept has been available to investors in the Tax Code since 1921: nearly a century. It has remained a part of tax law through various major tax reforms. The reason it has survived is because it is a very good tax policy as it encourages reinvestment which drives economic growth and is built on the principle of not taxing gains until they are realized by the taxpayer.
My partners’ and my businesses employ approximately 50 people and our Iowa headquarters is in Ankeny. Most of these positions would be eliminated if Section 1031 was eliminated from the tax code. I know people in the qualified intermediary business who service investors doing 1031 exchanges. All of those businesses here in Iowa and across the nation will immediately go out of business if Section 1031 is repealed.
...Farmers (like my semi-retired 87-year-old father) rely on operating financing and need to be able to take tax deductions for that interest cost. Businesses like car dealers rely on interest expense deductions to carry the inventory they need to run their businesses...
The largest corporations with lower leverage ratios and wealthiest Americans in the country will of course benefit greatly from Brady’s plan with reduced tax rates and immediate expensing. Those same corporations will also pay the best professionals to find ways to economically still get their “interest expense” deductions. They will do this through offshore companies, preference share issuances, JV entities, partnership entities and a myriad of other structures yet to be designed...
...the House will drive the ultimate process and it is highly unlikely that Trump will stand in the way if the reform plan includes major themes he wants: like lower corporate and personal tax brackets."