As part of a continuing effort to keep you up to date on the implications that the Farm Bill currently being considered in Washington, DC. may have on Section 1031 tax-deferred exchanges, here's the latest: As you know if you have read my two previous blogs on this subject (the original and the update), the Farm Bill passed through the Senate in mid-December 2007 with one very important subsection (Section 12504) that would redefine the concept of like-kind in regards to Section 1031 tax-deferred exchanges. The essence of the change is to redefine all farm land that receives any government subsidy as non-like-kind to other farm land and other previously-considered like-kind real property, which includes all real property that is held for investment or used in the pursuit of a business or trade. The implications of this change to farmers who have owned their property for many years and would now seek to sell their property in order to retire would be horrendous. They either would be unable to sell entirely or would be faced with the prospect of giving up the very subsidy that the government essentially forced them to accept and deflating the value of their land accordingly in order to be able to exchange out of it into a more appropriate investment for their retirement years.

The House version of the Farm Bill has no such language regarding Section 1031 tax-deferred exchanges. In fact, it is completely silent on the subject of Section 1031 exchanges.

As you probably know, bills that make their way through Congress have to be reconciled between the two houses before they are sent to the President for his consideration. So the two houses will have to meet and work out the differences between the two versions. This could begin happening as early as mid-January when the members return from their Christmas/holiday breaks. The objective will be to hammer out a compromise in early 2008 in order to get the new bill enacted in time for spring planting season.

You can rest assured that the association to which Iowa Equity Exchange belongs, the Federation of Exchange Accommodators, will be working hard to oppose the provision that the Senate has passed. (The Federation of Exchange Accommodators is a national association dedicated to the Section 1031 tax-deferred exchange industry, its Qualified Intermediaries, the protection of the public, and the furtherance of the industry in general.) As I mentioned in the previous blogs, if you are so inclined, please send your congressional representatives a letter, give their offices a call, or send them an email to express your opinion about this potentially disastrous alteration to Section 1031 tax-deferred exchanges.

Ken Tharp

Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.

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