The future of 1031 like-kind exchanges in Washington, D.C.’s political climate


The Biden administration and the 117th Congress blazed into the 2021 legislative session intent on passing pandemic relief and sticking to promises made on the campaign trail. President Biden sold himself as the candidate to bridge the divisions between Democrats and Republicans, setting extensive pandemic relief and vaccination rollouts as cornerstones of a bipartisan agenda. Yet, as the months have ticked by, prospects of bipartisan cooperation have been waning.

Congressional Republicans have wielded immense influence even from their minority positions in both chambers of Congress, particularly in the split Senate. The Senate filibuster has been used less for consensus-building and more as a tool of obstruction. The American Rescue Plan, the first package of President Biden’s three-part “Build Back Better” agenda, was only able to clear Congress through the budget reconciliation process, bypassing the 60 votes needed in the Senate. The Biden administration and Congressional Democrats will be hard-pressed to utilize this process again as they seek to push the next two relief packages.

AAHOA has actively engaged with state and federal lawmakers on all three parts of the “Build Back Better” agenda. The American Rescue Plan appropriated nearly $200 billion in aid to state governments based on unemployment figures, and we continue to work closely alongside our partner state associations to direct this funding to our industry and others severely battered by the pandemic. Parts 2 and 3 of the Biden administration’s agenda, the American Jobs Plan and the American Families Plan, respectively, face similar challenges in the halls of Congress.

In April, President Biden unveiled the American Families Plan, the third and final phase of his relief agenda. The American Families Plan proposes substantial changes to several existing tax laws. Of the proposed tax reforms, the $500,000 cap on the like-kind exchange (LKE) rules of Section 1031 of the Internal Revenue Code would be the most detrimental to the hotelier and our industry’s budding recovery.

Since 1921, LKEs have encouraged capital investment by allowing funds to be reinvested back into a small business or other enterprises. LKEs allow taxpayers to exchange their property for more productive like-kind property, to diversify or consolidate holdings, and to transition to meet changing business needs. In a 1031 exchange, the investor does not immediately realize a gain or loss when they exchange assets for “like-kind” property that will be used in their trade or business. For all successful 1031 transactions, the federal government receives the full amount of taxes once the property or other investment is liquidated.

AAHOA has strongly advocated against the proposed $500,000 cap. In a recent survey, many of our members reported that LKEs were essential to growing their businesses, spurring job creation and capital investments in local communities. As currently written, the American Families Plan would substantially hinder economic recovery in towns and cities across the nation while further delaying the years-long road to recovery our industry faces. Given the partisan gridlock enveloping the “Build Back Better” agenda, the discourse on the American Families Plan could be drawn out for weeks or even months. As we continue to meet with lawmakers and operate our grassroots advocacy campaigns, it is imperative our members take part and contact their elected officials to help oppose this cap on LKEs.


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