Code Section 1031 has existed since the dawn of the income tax in the original Revenue Acts of the 1920s. It has remained virtually unchanged since its inception in the Internal Revenue Code of 1939. There have been proposals to repeal it but rather Congress has limited its application first by eliminating exchange of partnership interests, then limiting related party exchanges. The Tax Court has long been friendly to exchange taxpayers and the Service conceded taxpayer  structures by adopting the deferred exchange Regulations following the Starker case, and the Reverse Exchange Rev. Proc.

The strong investment sales environment in the past two years has created a booming 1031 exchange market. Due in part to the discourse regarding reform of the tax code, Congress is proposing legislation that would make 1031 exchanges less attractive. There are two key proposals in Congress. One would limit the deferral amount to $1 million per year. The second would repeal it outright. Hopefully the exchange and real estate industries will be able to convince Congress that repealing Code Section 1031 would be the proverbial drop in the bucket in reforming the tax code and would not likely even lead to much revenue.