Effective after December 31, 2017, the Tax Cuts and Jobs Act (“the Act”) repeals the favorable deferral of gain generated by like-kind exchanges of tangible personal property. This means that businesses in the transportation industry can no longer defer gains on the exchange of tractors, trailers, straight trucks, vehicles, equipment, and other personal property. However, the Act still allows a tax-free exchange for real property that is held for use in a trade or business or held as an investment.
Like-kind exchanges were useful to many trucking companies to defer gains associated with the disposal of low tax-basis equipment. The ability to use the new 100% bonus depreciation should help to mitigate the impact of the loss of the like-kind exchange for equipment over the next several years.
It should be noted that a transition rule may apply to qualified personal property that is relinquished before or on December 31, 2017 and the replacement property is later acquired in accordance with the 45-day identification deadline and 180-day exchange deadline.
As companies and investors navigate through the complexities and the repeal of favorable items caused by tax reform, planning opportunities such as tax deferral of qualified real property, such as terminals and warehouses, should be considered.