1031 exchanges allow investors to sell their properties and defer the taxes on capital gains by purchasing another property. The genesis of this rule goes back to the agrarian US society, in which Congress did not want farmers making decisions to delay acquiring more or better property because they did not have the cash to pay the capital gains. It later became the standard for most business assets (Trains, Planes and Manufacturing Equipment, for example). The Government WANTS people to invest more, because with further investment comes more opportunity for tax revenues.
Unfortunately, with the current budget crisis and Congress looking to raise additional funds to reduce the deficit, Section 1031 exchanges have come under fire. But, the changes will not come without broad economic consequences.
Michael Brady, Corporate Counsel for Riverside 1031 discusses proposed changes in the law as well as the basics in how to transact a 1031 exchange.