By: James T. Walther, Esq., LL.M.
General Counsel, Legal 1031 Exchange Services, LLC
**UPDATE: In July 2022, the Pennsylvania Legislature enacted HB 1342, a budget bill that included sweeping tax reform legislation. A provision of the Bill conforms the state’s treatment of like-like exchanges with Section 1031 of the Federal Internal Revenue Code. Previously, state personal income tax did not conform to IRC Section 1031. We believe that the 1031 provision is effective for tax years beginning after December 31, 2022. Taxpayers are encouraged to discuss with advisors the effect of this legislation on transactions.
Updated Article: Pennsylvania Conforms its State Tax Code to Federal §1031
This article has been superseded but left on our page for informational purposes.
We are sharing an update to an Article that we posted earlier this year discussing the current efforts to recognize 1031 exchanges in Pennsylvania. Currently, in the PA Legislature, Senate Bill 347 “like kind exchanges” (“S.B. 347”) has made it out of the Senate Finance Committee. The Committee advanced the Bill with a 9-2 vote and it was reported as Committed on June 14th, 2021.
S.B. 347 seeks to amend Pennsylvania’s Personal Income Tax (“PIT”) laws to mirror federal tax law. Currently, many small businesses and individuals, cannot utilize a 1031 exchange (“like-kind exchange”) to defer gain subject to the PIT (3.07% rate). This includes the bulk of small landlords in Pennsylvania who generally are not corporate taxpayers. S.B. 347 is part of a larger Small Business Tax Reform Package aimed at increasing state tax benefits for small businesses.
Is it possible that PA taxpayers will be able to utilize Section 1031 like-kind exchanges in 2021?
We hope so. As of June 25th, 2021, the Senate Bill has advanced a stage in the legislative process and has been re-referred to the Appropriations Committee. A companion House Bill (H.B. 105) is still awaiting a vote in the House Finance Committee. Both chambers of the legislature must approve reciprocal bills for legislation to become a law. Previous legislation expired before both chambers could approve their bills. The Bills would be effective immediately if they are passed by the Legislature and signed into law by the Governor. Since there is plenty of time left in the 2021-22 Legislative Session, the Legal 1031 Team is optimistic that 1031 recognition might finally be accomplished before the legislative session expires.
You can monitor the status of the PA Legislature’s efforts here:
H.B. 105 “Like-Kind Exchanges”
S.B. 347 “like kind exchanges”
If you would like additional information about how the current state of the law in Pennsylvania may affect a 1031 exchange, please reach out to us at: james@legal1031.com or info@legal1031.com.
If you are a PA real estate owner or you represent them, you can reach out to your local representatives to discuss how 1031 can benefit you or your business, or has benefitted you or a client. You can find their contact information here – Find your PA Legislators
Disclaimer: This document is intended for use as information only by the named recipient(s)and should not be shared without the sender’s express permission. Taxpayers should conduct their own research and due diligence with their tax or legal advisors.
Legal 1031 Exchange Services, LLC does not provide tax or legal advice, nor can we make any representations or warranties regarding the tax consequences of your exchange transaction. Property owners must consult their tax and/or legal advisors for this information. Our role is limited to serving as qualified intermediary/accommodator to facilitate your exchange.
Disclosure: This to advise you that, unless otherwise expressly indicated, any perceived federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.