MBA, Trade Groups, MAA Urge Congress to Support Section 1031 Like-Kind Exchanges, Industry Tax Priorities

Ahead of committee action in Congress this week on major infrastructure and economic legislation, the Mortgage Bankers Association and more than three dozen industry trade groups, as well as MBA’s grassroots advocacy arm, the Mortgage Action Alliance, urged senators and representatives to support and defend the real estate finance industry’s tax priorities.

In a letter to the House Committee on Ways and Means and the Senate Committee on Finance, MBA and 39 industry trade groups said proposed restrictions on section 1031 of the tax code would undermine the economic recovery and cause unnecessary risks to U.S. real estate if enacted. They urged lawmakers to preserve current law as it relates to section 1031 like-kind exchanges.

“Like-kind exchanges of real estate under section 1031 support jobs and investment, the health of U.S. commercial real estate and real estate markets and the preservation of family-owned farms, ranches and forestland,” the letter said. “Communities and nonprofit organizations use like-kind exchanges to conserve land for the benefit of the public and future generations. Gains reinvested in new property through an exchange create a ladder of economic opportunity for small and minority-owned businesses and entrepreneurs and generate much-needed tax revenue for states and localities.”

Like-kind exchanges also increase the supply of affordable rental housing by filling gaps in the housing supply not covered by other incentives, the letter said, noting like-kind exchanges will continue to contribute significantly to the nation’s economic well-being and help it recover more quickly from the pandemic.

The Senate voted unanimously on Aug. 10 to amend the budget resolution to include language specifically aimed at preserving the current law tax treatment of like-kind exchanges, which is said demonstrates “overwhelming and widespread support” for section 1031 and its economic contributions.

“We share your commitment to addressing structural weaknesses and inequalities in the economy,” the groups wrote. “Today, following years of careful legislating and regulatory rulemaking, section 1031 supports job growth, creates a ladder of economic opportunity for small businesses, cash-poor entrepreneurs, and farm, ranch and forest owners, and constitutes an important tool for the environmental conservation of land for future generations. For these reasons, like-kind exchanges will have an important role in the economic recovery and beyond.”

In a Call to Action Wednesday, the MBA Mortgage Action Alliance asked its 70,000-plus members to contact their members of Congress to support real estate finance industry tax priorities.

“House and Senate committees are finalizing major infrastructure and economic legislation, including tax increases that would impact the real estate finance industry, in the coming days,” said MBA Senior Vice President of Legislative and Political Affairs Bill Killmer. He noted committee action is geared toward a Sept. 15 deadline for a draft bill.

MBA provided a set of Talking Points for MAA members to use. Major priorities include:

–Minimum Book Tax & Mortgage Servicing Rights: MBA supports maintaining the deferred tax treatment of income related to mortgage servicing rights.

–Section 199A Pass-Through Deduction: MBA opposes any efforts to reduce or repeal the 20-percent deduction for qualified business income (QBI) under Section 199A.

–Increase in Capital Gains Rate: MBA maintains that capital gains should continue to receive tax treatment that is distinct from ordinary income, which serves as a key stimulant to investment in a variety of capital-intensive industries, especially real estate.

–Tax Treatment of Gain on Sale of Home: MBA wants Congress to maintain the current law provision; but if the current tax code must change, allow homeowners to continue to exclude a portion of the gains on the sale of a home.

–Housing Access/Affordability Provisions: MBA supports proposals that reduce down payment barriers for first-time, first-generation and minority homebuyers, such as the Downpayment Toward Equity Act, and support tax credit programs that increase affordable housing supply and benefit individual buyers and the housing market, such as the Neighborhood Home Investment Tax Credit, Middle Income Housing Tax Credit and expanding the Low-Income Housing Tax Credit program.

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