Realtors Eye Conferees' Moves On 'Like-Kind' Exchanges.

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Author: Vaughan, Martin

Taxes

Realtors and real estate investment groups this week urged tax reconciliation conferees to reject a proposal that would scale back a tax benefit allowing investors to defer taxes on the sale of property by exchanging that property for an interest in a second, replacement property. Section 1031 of the tax code has long allowed investors to use such "like-kind" exchanges, whereby real property is exchanged for real property of equal value, to avoid taxes that would be due if the property was sold for cash. But an IRS revenue procedure in 2002 suggested that those tax deferral benefits may also apply where a property is exchanged for only a partial interest in that second property, known as a "tenant-in-common arrangement," or TIC. The use of TICs has exploded since that 2002 ruling, industry sources said.

Investor and business groups fear the tax benefit may become a casualty of tax-writers' hunt for revenue sources to pay for extending tax cuts that are a part of the tax reconciliation conference agreement, but would not fit under that bill's $70 billion limit. While conferees have agreed in principle on the contents of that package, congressional aides would not confirm whether any provision limiting "like-kind" exchanges is a part of the package. The provision was not included in either the House- or Senate-passed version of tax reconciliation. But a Senate aide confirmed there is interest in reviewing TICs to see if investors are reaping tax benefits that go beyond what Congress originally intended for like-kind exchanges. For example, the aide said, the code does not allow a "like-kind" exchange for readily exchangeable assets like securities. "It's a policy call as to whether or not this was the intent of Congress," the aide said.

The tax reconciliation bill cannot be finalized until the House and Senate agree on what provisions are to travel in a second package of mostly popular tax extenders. Senate Budget Chairman Gregg told reporters today that, after reviewing the tentative deal on the tax reconciliation conference report, he does not believe it would be subject to a point of order for violating budget rules. Gregg's assent means the package will only need 51 votes to pass the Senate.

Meanwhile, Democrats today sought to connect Republicans' decision to strike tax increases for oil companies from the reconciliation bill with their move to leave tax-cut extensions out of the bill for college tuition. The reconciliation conference agreement is not expected to include two Senate-passed tax increases aimed at oil companies, including a change to accounting rules and new limits on the use of foreign tax credits by oil firms, after the industry lobbied against those provisions. Sen. Charles Schumer, D-N.Y., and Minority Whip Durbin noted in a news conference that those tax increases combined â€" projected to generate $5.1 billion over five years â€" could have funded a three-year extension of the college tuition tax deduction, which expires at the end of this year.

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By Martin Vaughan