On January 5th, the Democratic candidates won control of the Senate. Already having a majority in the House of Representatives, they now control the entire legislative branch of the U.S. Government. This gives them a clear path to enacting tax law changes. So what does the path ahead look like? Here are some factors that could affect the future of IRS Section 1031, and the timing of any possible changes.
Changing the IRS tax code is a very complicated process. Many items in the code are linked to others. This means that often you can’t change one without affecting another, making the process incredibly laborious and nuanced. Even with a majority, a lot has to happen for tax law to change. And that majority control is very slim. The House of Representatives, for example, is split 50/50 between Republicans and Democrats with Vice President Kamala Harris as the tie breaker. This means that it would only take one dissenter to slow everything down.
The incoming administration enters Washington on January 20th. They first have to deal with the 116th Congress’s lame duck session, which will leave extensive unresolved business that needs to be addressed before anything else. Also, it is largely expected that the global pandemic will take center stage in the White House for at least the first few months of Joe Biden’s presidency. This could include stimulus payments, unemployment extensions, and comprehensive vaccine rollout plan. After the new plans are in place, they will take months to implement and no one really knows how long it will be until the pandemic passes. Once the pandemic has passed, stabilizing the economy post-covid would likely become a priority.
Even with these factors, it is very likely changes are coming to the tax code. It is uncertain when that will happen or what it will look like. Given these challenges, it is a safe bet that any changes won’t happen until late 2021 at the earliest. And changes don’t necessarily mean 1031 exchanges will go away entirely, but an investor who is expecting to complete an exchange should watch carefully as changes progress. As always, of you have strong feelings about keeping 1031 exchanges, you should contact your local government representatives and let them know what is important to you.
For more information on 1031 exchanges, or for help finding your local government representatives contact information, contact one of our experts today!
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