tax reform; capitol building

Take Action: Protect The 1031 Exchange

The REALTORS® Land Institute and National Association of REALTORS® need your help to ensure the 1031 exchange remains protected in the proposed Tax Plan. Both the House and the Senate have released their tax reform plans retaining 1031 like-kind exchanges for land and real estate. However, we cannot be complacent – there is still a risk to 1031s as the tax reform proposals make their way through the legislative process.

The REALTORS® Land Institute and NAR need your help to protect 1031 like-kind exchanges for land and real estate. We encourage all landowners and land professionals to take action and help us ensure this valuable tax code makes it safely through the as the new Tax Plan moves forward.

Two Ways To Action:

1. Email this letter to your Members of Congress here.

OR

2. Call your Members of Congress and inform them of the importance of protecting the 1031 Exchange. You may use the information in this letter as a reference.

For more talking points or information on 1031s and their importance, visit our Advocacy page or our member resources center.

Template Letter to Send to Your Member of Congress

Dear Member of Congress,

As Congress considers ways to create jobs, grow the economy, and raise wages through comprehensive tax reform, I want to thank you for retaining current law regarding like-kind exchanges for land and real estate under Section 1031 of the Internal Revenue Code.

I would also urge you to retain this important land investment tool as the bill moves through the legislative process. Like-kind exchanges are integral to the operation and vitality of thousands of American businesses, especially in the land real estate sector. Like-kind exchanges allow taxpayers to exchange investment and business property for similar types of property, to diversify or consolidate holdings, and to transition to meet changing business needs.

A recent economic study found that like-kind exchanges encourage real estate and other capital investments.[1] This study also concluded that taxpayers engaged in a like-kind exchange make significantly greater investments in replacement property than non-exchanging buyers.

The elimination or restriction of like-kind exchanges would increase the cost of capital, slow the rate of investment, and decrease real estate transactions. It will have a negative effect on land transactions since land is not allowed to be expensed. Restricting this tool will lower land values across the country, which will negatively impact rural counties’ tax base and economic potential.

Like-kind exchanges promote tax reform goals such as economic growth, job creation, and increased competitiveness. Restricting them would hinder economic activity and investment, particularly in land.  It is an essential tool used by family farmers and ranchers and should be retained.

Thank you for your consideration of this important matter.

Sincerely,

[1] David Ling and Milena Petrova, The Economic Impact of Repealing or limiting Section 1031 Like-Kind Exchanges in Real Estate (March 2015, revised June 2015), at 5, available at http://www.1031taxreform.com/wp-content/uploads/Ling-Petrova-Economic-Impact-of-Repealing-or-Limiting-Section-1031-in-Real-Estate.pdf.

Waters of the US (WOTUS)

EPA and the Corps Announce Opportunities for Public Input on WOTUS

On August 25, the US EPA and the Corps today announced a series of teleconferences, one in-person meeting, and other opportunities for public input on Waters of the US (WOTUS) this fall. “The Environmental Protection Agency (EPA) and the U.S. Department of the Army (the agencies) will hold ten teleconferences to hear from stakeholders their recommendations to revise the definition of “Waters of the United States” under the Clean Water Act (CWA),” the announcement starts. “Both EPA and the Corps are aware that the scope of [Clean Water Act] jurisdiction is of intense interest to a broad array of stakeholders and therefore want to provide time for broad pre-proposal input,” the notice states. View the full announcement here.

The Realtors® Land Institute (RLI) stands behind the US EPA’s decision yesterday to move forward repealing the controversial Clean Water rule which was put in place in 2015. RLI has long advocated that withdrawing WOTUS would have a beneficial impact on the real estate sector, especially land real estate. The organization hopes to see the review of the rule eliminate the need for costly and time-consuming permits on waters that were previously unregulated by the federal government.

RLI encourages its members and landowners across the country to participate in the comment period during phase one, which is implementing a rule to re-codify the regulation that was in place prior to 2015. This comment period is currently open through September 27, 2017.

RLI also encourages participation in the series of teleconferences that will be held to better define the scope of CWA jurisdiction. The teleconferences will be held on a weekly basis beginning September 19, 2017. For a full schedule of webinars and ways to participate, please see the full announcement.

sage grouse

Conservation Plan for the Greater Sage Grouse Reviewed

After a June 7 order, the Department of Interior (DOI) has worked with various organizations and task forces to review the Greater Sage Grouse conservation plan under the Endangered Species Act. On August 7, the DOI released the first set of recommendations to make modifications to the plan. Farm and ranch land owners out west in affected areas have struggled with restricted cattle grazing and stunted development abilities to farmland properties since the plan was put in place in 2015. Most just want to see a balance struck between ensuring the species does not go extinct and that their private property rights are not infringed upon by legislation that is unnecessary. Read full article.

UPDATE | 10/6/2017 The Department of Interior, Bureau of Land Management announced the cancellation of a proposed withdrawal of 10 million acres of public land throughout the Intermountain West. The notice of cancellation can be found on the BLM website here.

These lands were proposed to be withdrawn as sage grouse habitat, but this massive withdrawal of public lands would have also significantly impacted the economies of communities who relied on this land for mining, grazing, timbering, etc.

NAR submitted a comment letter in 2015 expressing concerns about this public lands withdrawal and the economic impacts it would have had on communities.

The lands will continue to be managed in accordance with existing plans, programs, policies and regulations in Idaho, Montana, Nevada, Oregon, Utah and Wyoming.

Read more on Sage Grouse Management in the News in a piece by Paul Bottarri, ALC, on the RLI 2017 Government Affairs Committee.

Proposal Released to Rescind the WOTUS Rule

“Fulfilling a portion of an executive order by President Donald Trump, the EPA and U.S. Army Corps of Engineers have released a proposal to rescind the Waters of the United States (WOTUS) rule that expanded federal jurisdiction under the Clean Water Act.

The proposal published in the Federal Register on Thursday, July 28 would nix the 2015 WOTUS rule and reinstate the definition of the streams and wetlands subject to federal oversight under the act that existed prior to its finalization.” Read more from the NAR article.

Washington D.C. land real estate

The Four New Realities of Washington, D.C.

Usually I give a brief update on land real estate public policy issues of interest to REALTORS® Land Institute (RLI) land professionals and the landowners they serve.

However, the election of Donald Trump to the highest elected political office in the land has scrambled the usual political dynamics of Washington, D.C. – the rule-book has been thrown out and we are in uncharted waters.

Given the unusual political environment we find ourselves in today, I thought it might be helpful to identify some of the factors that now make up the new reality of Washington, D.C., and how these factors might impact land real estate public policy issues that land agents and landowners care about. So here they are, the four new realities of Washington, D.C.:

  1. New Administration. The Trump Administration was elected to achieve several big priorities: immigration reform; comprehensive tax reform; construct a wall on the southern border; and repeal and replace Obamacare. Smaller items on the agenda include reforming existing trade agreements and repealing Dodd-Frank. The Trump Administration is still finding its way on how to achieve its policy priorities, but eventually, they will find their footing. When they do, tax reform could be the issue they turn to for a legislative win.  Of all of these issues, tax reform could pose a threat to RLI’s most important legislative land real estate public policy issue: preserving the 1031 Like-Kind Tax Exchange for landowners and investors.
  2. New Congress. While the Republicans have captured both the House and Senate, they did so with small majorities and increased ideological polarization. Practically speaking, this is a recipe for legislative gridlock as congressional leaders discover it is difficult, if not impossible, to cobble together enough members to pass legislation. However, this could work in RLI’s favor.  While legislative stagnation means that some bills RLI members might support don’t get passed, it also means that other bills, such as tax reform that harm 1031s, might never see the light of day.
  3. Executive Order (EO) Governance. A recent trend for presidents is to issue Executive Orders when they are unable to achieve their policy agenda in Congress. This occurred quite often during both the Clinton and Bush Presidencies, then, accelerated quickly during Obama’s presidency. Trump has used them even more frequently to achieve early momentum on some of his key policy goals. While EOs are limited in scope because they only impact activities of the federal government and not broader corporate or social institutions, they can be used in a targeted way to achieve a specific result.  One recent EO directed the EPA to begin the process to rescind and replace the controversial and damaging Waters of the U.S. (WOTUS) regulation. If Trump does nothing else as President, rescinding WOTUS will help land owners and real estate agents more than anything else.
  4. De-regulatory Environment. President Trump has made it clear to all the federal regulatory agencies that they need to establish a process for reviewing and rescinding unnecessary or antiquated regulations. This has also been the subject of several EOs as well. While deregulation of the private sector is an important goal, this strategy has limitations as well.  First, the process for repealing a regulation is cumbersome and time-consuming.  Second, these only apply to regulations that originated in the federal agencies.  For example, the WOTUS and the Clean Power Plan regulations were initiated by the Environmental Protection Agency (EPA), without any statutory direction from Congress, so they can only be repealed by the EPA.  Regulations implemented under the direction of Dodd-Frank or the Affordable Care Act were initiated under the congressional authority, so they can only be repealed or modified by Congress.  Deregulation will unburden land real estate agents and their clients as well as help spur innovation and economic development.

This article originally appeared in the 2017 Summer Terra Firma Magazine, the official publication of the REALTORS® Land Institute.

Riggs, Russell - NAR Government AffairsAbout the author: In his position with the National Association of REALTORS®, Russell Riggs serves as the RLI’s Government Affairs Liaison in Washington, D.C., conducting advocacy on a variety of federal issues related to land.

waters of the US (WOTUS)

Repeal of WOTUS Rule Moves Forward

June 28, 2017 (Chicago, Ill.) – The Realtors Land Institute (RLI) stands behind the U.S. EPA’s decision yesterday to move forward repealing the controversial Clean Water rule, also known as Waters of the U.S. (WOTUS), which was put in place in 2015. The move would take the legislation back to what it was prior to 2015 while the agencies involved reevaluate the definition of what constitutes as ‘Waters of the U.S’.

All of this follows President Donald Trump’s executive order on February 28, 2017, which called upon the EPA to review the rule. EPA Administrator Scott Pruitt stated that the intent of the review is to “[Take] significant action to return power to the states and provide regulatory certainty to our nation’s farmers and businesses.”

The Realtors Land Institute has long advocated that withdrawing WOTUS would have a beneficial impact on the real estate sector, especially land real estate. The organization hopes to see the review of the rule eliminate the need for costly and time-consuming permits on waters that were previously unregulated by the federal government.

“RLI looks forward to working with the Administration, EPA Administrator Scott Pruitt and the Assistant Secretary of the Army for Civil Works, as they move forward to develop common-sense solutions to protecting our nation’s water resources while balancing the interests of land real estate and communities nationwide,” said Brandon Rogillio, ALC, 2017 Realtors Land Institute National President.

Learn more about this issue and other legislative issues important to land real estate owners and agents on the Realtors Land Institute’s Advocacy page.

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About the REALTORS® Land Institute
The Realtors Land Institute, “The Voice of Land,” continually strives to maintain its status as the acknowledged leader for all matters pertaining to the land real estate profession. RLI endeavors to remain the essential membership organization for the extraordinary real estate professionals who broker, lease, sell, develop, and manage our most precious resource: the land. The Realtors Land Institute, provides the expertise, camaraderie, and valuable resources that are the foundation for all land real estate professionals to become the best in the business. For more information, visit rliland.com or call 800.441.5263.

Forget the Capital Gains Tax, Full Speed Ahead!

One of my favorite old westerns is “El Dorado”. Yes, it stars John Wayne and Robert Mitchum. Yes it has James Caan and Arthur Honeycutt. And, more importantly, it has Charlotte Holt and the cutest Cary Michelle and, of course, the golden tunes of George Alexander singing the theme song…

In the movie, the bad guy, Ed Asner tries to steal a ranch owned by the McDonald family. In the end, Wayne, Mitchum, Caan and Honeycutt come to the rescue and the ranch is saved. Maybe the best part is when Ed Asner gets shot about a gazillion times at the end. Considering how he treated Mary Tyler Moore about 80 years later, he got what he deserved. The moral of the story is, when the McDonalds thought that they would lose their ranch, the gang came to the rescue and that is what we are going to discuss.

Like the McDonalds, landowners are under attack and now it’s from Congress. Congress is actually considering making changes or even revoking 1031 exchanges. What are these people thinking? Real estate associations, qualified intermediaries, and all kinds of people and groups associated with real estate have been lobbying; however, their efforts may be falling on deaf ears. Maybe Congress should be spending more of its time on spending reform and leave 1031 exchanges alone.

So the million dollar question (before taxes!) is what can a landowner do if 1031 exchanges are no longer part of the tax code to defer taxes. Well, there is good news! If there wasn’t, would I be writing this blog?

There is a great opportunity today for RLI members to assist their clients to defer taxes when the sale of a great property creates a large tax liability. That can be any type of property including a primary residence. Not only is there a way to defer taxes with a 20-year track record of success, but it may also be more flexible than a 1031.

I am fortunate to be one of the few advisors nationwide with access to a proprietary trust that was created by some of the smartest tax attorneys in the country to defer taxes when the sale of a highly appreciated asset creates a large tax liability. The IRS conducted a two-year examination of the proprietary trust and that examination was concluded in Washington DC. Other regulatory agencies have also conducted examinations and had not had any concerns.

Our proprietary trust has a 20-year track record with over 2,000 trusts being successfully created with our largest transaction being over $100 million with a tax deferral of $50 million. The proprietary trust has also successfully passed all 13 IRS audits with no changes recommended by the IRS. Our proprietary trust is on solid legal and tax ground but it is always important for your clients to do their due diligence as well. Because of the flexibility of our trust, almost any situation where there is a tax liability can be an opportunity for RLI members to sell more real estate by deferring taxes. Here are a few of the opportunities where our strategies may be useful.

Imagine for a moment if you could defer your sellers’ capital gains tax, state tax, depreciation recapture, and the Obamacare tax on their hard earned sales proceeds and you can defer them indefinitely. Imagine being able to defer those taxes without 45 or 180 day periods, no loan to value ratios, and your seller can buy any type of property at any time in the future. If it takes a year to find another property, that’s fine.

Imagine that you have a farmer or rancher client that has worked his property for decades and would like to sell and retire. You can sell that property and defer those taxes on his hard earned sales proceeds and give the seller a larger retirement income than if he had to pay taxes first.

Imagine all the times in the past that either your seller’s 1031 exchange couldn’t be completed or 1031 exchanges aren’t appropriate. Being able to defer those taxes today, and without an exchange, provides a great opportunity for your sellers. If you can’t identify a property in 45 days, no problem. If it takes six months, we can still defer taxes. You identify a property and if a problem of some kind occurs and the exchange falls apart, we can still defer taxes.

Has this scenario ever happened: You are selling a great property for your seller but he refuses to accept any offer until he finds a replacement property, and six to eight months later he is still looking for one. What if instead, you sell the property now, defer taxes now, get paid now, and, if it takes a year to find that replacement property, everyone is happy.

Say you found a great buyer for your seller. There is a slight problem. The seller is going to have a large tax liability and would like to defer taxes using a 1031. Unfortunately, the buyer has to pay for the property over four years. A 1031 exchange to defer the capital gains tax probably won’t work but our strategies will.

Say you have three owners of a great property that want you to sell the property for them. One owner wants to take the proceeds and run. The other two owners want to defer taxes. A 1031 probably won’t work but our strategies will.

You have a great client who is thinking about selling his high end residential property. He is going to have to pay millions in taxes. You can defer his capital gains tax, state tax, and the Obamacare tax on the sales proceeds. In gratitude, maybe he will buy a ranch or farm from you.

As a long-time partner of the RLI, I have worked with brokers all over the country. We have deferred millions in taxes and we are now also working with large institutional buyers of rural properties. Our Section 453 tax deferral strategies have been utilized successfully over 2,000 times with our largest transaction being over $100 million with a tax deferral of $50 million.

The bottom line is… relax. If Congress is smart, they will leave 1031 exchanges alone and our strategies can be a great Plan B. If Congress ends 1031 exchanges, we may have a better option to defer taxes, and in more situations. If there is a potential tax liability, let’s chat and see if there is an opportunity to defer that tax liability. Your sellers will love you.

Every time I watch a John Wayne movie except maybe The Quiet Man, Wayne comes to the rescue and I always wish that was me. Now is my time to come to the rescue and help your property owners sell a great property and keep more of their hard earned sales proceeds in their pockets while sending less to Washington and their local state capital.

Happy Selling!

About the Author: David is a Partner at Creative Real Estate Strategies, a 2015 Silver Partner of the Institute, and has been in the industry since the late 70s. His years of experience help him to assist land brokers in helping their clients defer capital gains tax, state tax and depreciation recapture taxes on their client’s sales proceeds when either their clients are unable to complete their 1031 or the client would like to sell and retire but still defer taxes. By understanding these tax deferral strategies, brokers have been able to sell more real estate. David can be reached at 713-702-6401 or at David@cresknowsrealestate.com

The Trump Tax Plan & 1031 Exchange Tax Reform

With a new president in the White House who campaigned on tax cuts, and Republican majorities in the House and Senate who have long been waiting, 2017 may be the year tax reform finally moves forward. But major storm clouds loom on the horizon for 1031 like-kind exchanges. 1031 like-kind exchanges, a very useful tax provision for the real estate sector, could be reformed or eliminated during the next phase of tax reform activity in Congress.  Take Action.