2017 Tax Law: New Rules for Like-kind Exchanges, NOLs & More.

• Author: Josephs, Stuart R.
• Position: Fed Tax

The 2017 Tax Cuts and Jobs Act, P.L. 115-97 enacted Dec. 22, 2017, contains many widespread provisions affecting individuals and businesses. Below are some of the more commonly encountered business changes that will be experienced in tax practice.

Like-kind Exchanges

Old Law: No gain or loss is recognized if property held for productive use in a trade or business, or for investment, is exchanged for property of a "like-kind," which is to be held for productive use in a trade or business or for investment.

Whether property is like-kind relates to the property's nature or character, not its grade or quality. Improved and unimproved real property generally are like-kind, as this distinction relates to the real property's grade or quality.

New Law: Like-kind exchanges are allowed only for real property that is not held primarily for sale.

Effective Date: This new rule generally applies to exchanges completed after 2017 unless the property:

* Disposed of by the taxpayer in the exchange is disposed of before 2018; or

* Received by the taxpayer in the exchange is received before 2018.

Net Operating Losses

Old Law: A net operating loss (NOL) generally is the excess of a taxpayer's business deductions over its gross income. In general, an NOL may be carried back two years and carried over 20 years to offset taxable income in those years--in the order of the tax years to which the NOL may be carried.

Different carryback periods apply to NOLs arising in different circumstances. Extended carryback periods are allowed for NOLs attributable to specified liability losses and certain casualty and disaster losses. Limitations are placed on the carryback of excess interest losses attributable to corporate equity reduction transactions.

New Law: The two-year carryback and the special carryback provisions are repealed, except for a two-year carryback for certain losses incurred in the trade or business of farming and for non-life insurance companies.

NOLs arising in tax years beginning after 2017 can only reduce 80 percent of taxable income in a carryback or carryover year (determined without the NOL deduction). This 80 percent limitation does not apply to non-life insurance companies.

NOLs can be carried over indefinitely. except for a 20-year carryover period for non-life insurance companies.

The following deductions are not allowed in computing an NOL:

* For qualified business income under IRC Sec. 199A (see March/April 2018 California CPA, Page 23); and

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