Combined 1031 Exchanges and 121 Exclusions May Be Changed

This should be good news for the 1031 exchange business, but not for taxpayers.

The House of Representatives has passed the Housing Bill, which has now been sent to the U.S. Senate for debate and vote. The Housing Bill contains a provision that will significantly change the structure of a combined 1031 exchange with a 121 exclusion.

Here is the down and dirty. The current language in the Bill says that a taxpayer can not exclude gain from a sale of property for the time that the property was used for non-qualifying uses (i.e. rental, investment, use in a business, etc.).

This means that if a taxpayer 1031 exchanges into property the gain that was deferred from the 1031 exchange could not be excluded under Section 121.

The U.S. Senate has to pass it and then the President must sign it, so a lot can change between now and then. We will keep you updated.