Final Regs on Section 199A Bring Good News for 1031 Exchanges

Final Regs on Section 199A Bring Good News for 1031 Exchanges

The proposed regs under Section 199A left many taxpayers and advisors scratching their heads as to the impact it would have on those taxpayers looking to complete a tax-deferred exchange under Section 1031.  One interpretation of the proposed regs could have meant that taxpayers would have to choose between the benefit of the 1031 exchange or Section 199A, but they could not enjoy the benefits of both.

The proposed regs would have inadvertently penalized an individual or pass-through entity doing a 1031 exchange based on how it was proposing to define the unadjusted basis immediately after acquisition (UBIA) of the replacement property.

Thankfully, the final regs. have provided much needed clarification that has resulted in a win for those individuals (or pass-through entities) looking to take advantage of the benefits of both the 1031 exchange and section 199A deduction.  

For more information regarding the final regs, visit https://www.irs.gov/pub/irs-drop/td-reg-107892-18.pdf

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