Of counsel David Shechtman was quoted in a recent article in Tax Analysts titled “Proposed Like-Kind Exchange Limitation Raises Mismatch Concerns.” This article discusses the provision proposed in the House Republicans’ tax reform bill which would limit “like-kind” exchanges to transfers of real property interests, thereby eliminating this popular tax deferral technique for tangible personal property (e.g., airplanes and construction equipment) and intangibles (e.g., FCC licenses and franchise agreements). Although the bill also provides a temporary expensing provision for tangible personal property, the article notes that expensing is not a perfect substitute for exchanges due to timing and property classification issues.
David stated that owners of intangible property interests (such as fast-food restaurant franchises) would be significantly affected because those assets are stuck with 15-year amortization, rather than expensing, and the owners would lose the opportunity to defer taxes through like-kind exchanges.
The effective date for the provision states that the limitation would take effect for exchanges completed after December 31, 2017, but the transition rule exempts exchanges commenced by December 31. David also addressed an ambiguity in the transition rule related to so-called “reverse” exchanges.