September 6, 2005
INSIDER: New Tax Law Adds Complexity to Tax-Motivated Real Estate Transactions Involving Property Leased to Tax Exempt Lessees
By John G. Balboni and Joseph E. Ladocsi
When it's time to sell, many real estate owners face the prospect of paying tax on capital gains generated by appreciation in their property's value. Frequently, these owners seek to defer paying these taxes by entering into Section 1031 like-kind exchanges. As a matter of public policy, these tax-deferral benefits encourage owners to reinvest their sale proceeds in like-kind assets. However, Section 470 of the tax code—enacted as part of the Jobs Creation Act of 2004—dramatically impacts the availability of these tax-deferral benefits under certain circumstances.
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