Section 1031 Like-Kind Exchanges: Review of the Past and Proposal for the Future

Congress created the tax-free exchange of like-kind property over 90 years ago and has since made several revisions to the law to prevent tax abuse and limit its application. However, the like-kind exchange rules, now governed by Section 1031, are expanding over time. In this article, we review the legislative history of Section 1031 and recently proposed changes to the law. In line with recent proposals, we recommend that Congress eliminate the special tax treatment granted to like-kind exchanges. However, in the event that Congress is unable or unwilling to make such a change, we also offer policy suggestions to limit current abuses of the like-kind provision relating to exchanges of investment property, the use of qualified intermediaries in non-simultaneous exchanges, and exchanges involving dual-use property.