Politician Cites 1031 Exchanges As…Divine Financial Advisory?

US Capitol Building

Ah, the political season.  The time when persons with sometimes monumentally odd ideas about cause and effect stand on a stump and broadcast these ideas loudly and clearly.

Well, loudly, anyway.

Meet Ben Carson.  A retired surgeon from Detroit, Carson’s political star is rising thanks to a strong showing in a recent straw poll. Riding the wave of recent notoriety brought him to a radio appearance, where an interviewer asked, in the context of Carson’s self-declared religious faith, if he had ever been “angry with God”.

Incredibly, his answer somehow included one of the real estate industry’s most venerable tax deferments and a favorite topic here at The Source: the IRS 1031 exchange.

The only other question I was given time to pose came [...] when I asked Carson, who self-identifies as deeply religious, if he’s ever doubted or been angry with God.

Yes, indeed, he indicated, recounting an incident in which the Lord apparently subjected him to Job-like tortures over a problem involving residential real estate. After buying a new house, he just couldn’t unload the old one. “My house was on the market for five years. And I said, ‘I pay my tithes. I am faithful. I try to help people. So why is this happening to me?’ ” Carson told me.

“And [then] I found out about the ‘1031 Exchange’ [named for a tax code provision] where if you sell a piece of property and you make a very, very large profit on it, you don’t have to pay huge taxes on it if you can roll it over into another property of higher value.”

Carson’s story went on in this disjointed fashion, and didn’t seem particularly illuminating, except to suggest that it definitely wasn’t an ordinary crisis of faith and the Almighty must be a savvy adviser on the Internal Revenue Code.

So Where Did 1031 Exchanges Come From?

While it’s far from clear if Carson believes 1031 exchanges to be the work of a higher power than Congress, his answer provides food for thought. Given that I’ve written about 1031 so many times, I thought I might contribute some clarity on the point.

1031 exchanges first appeared as part of the Revenue Act of 1921, passed as a package of federal tax reductions by a Republican-majority Congress on November 23 of that year. Lauded by Treasury Secretary Andrew Mellon, the Act repealed a tax on wartime excess profits, reduced the top marginal rate on individuals from 73 to 58 percent and instituted a new and more easily avoided corporate tax.

Specifically for Dr. Carson’s benefit: everything Congress votes on is in the public record.  And a quick look at that 1921 Senate vote (found here) lists many luminaries, including  future President William McKinley (voted aye), Wisconsin firebrand Bob LaFollette (nay), and Delaware’s quasi-aristocratic Thomas du Pont (no vote).

The almighty, however, is not listed in the roll call.

(Photo credit: ttarasiuk)

10. June 2014 by Wayne Grohl
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