Seattle is Nation's Second Best in Construction Jobs Added

 
 

The Associated General Contractors of America reported some good news for Seattle. But given the construction you see all around you, it might not be surprising news.

Here's the press release:

SEATTLE ADDED MORE NEW CONSTRUCTION JOBS BETWEEN OCTOBER 2011 AND OCTOBER 2012 THAN EVERY METRO AREA IN THE COUNTRY EXCEPT FOR HOUSTON
Seattle-Bellevue-Everett area hits four year construction employment high as employers add 6,500 new jobs, but threat of fiscal cliff’s spending cuts, tax hikes threatens local construction jobs, new report warns

The Seattle-Bellevue-Everett area added more construction jobs during the past year than all but one metro area as employment in the local industry hit a four-year high, according to an analysis released by the Associated General Contractors of America today. However, local construction jobs in the area are at risk if Congress and the president allow the “fiscal cliff” to occur, according to a new report the association also released today.

“It has been too long since we have had news like this to report here in Seattle,” said Butch Brooks, incoming president of the Associated General Contractors of Washington and owner of Brooks Construction Management. “Welcome as this news is, the looming threat of the fiscal cliff could cost this area thousands of construction jobs.”

Brooks said that the Seattle metro area added 6,500 construction jobs between October 2011 and October 2012, a 10 percent increase. He added that, out of the 337 metro areas the association tracks, only the Houston area added more construction jobs during the same time. There are 72,700 people working in construction in the Seattle metro area today, up from 66,200 a year ago. The association official added that local construction employment in the area is higher than at any point since the summer of 2009.

The recent increases in construction employment in Seattle represent a significant change from a years-long construction downturn that has eliminated nearly one-third of the construction jobs that existed in the area in 2007. Brooks noted that Seattle lost almost 30,000 construction jobs since October 2007. He added that 25 percent of the 211,300 construction jobs that existed through Washington in June 2007 have disappeared.

The local association official said that Seattle was not alone. Nationwide, 127 out of 337 metro areas added new construction jobs between October 2011 and October 2012, including Tacoma, Bellingham and the Kennewick-Pasco-Richland areas. But he cautioned that 156 metro areas lost construction jobs during the same time period while employment levels were stagnant in another 54 areas.

Brooks cautioned that the local increase in construction employment could be temporary if Congress and the administration were to allow the spending cuts and tax hikes that make up the fiscal cliff to occur. He noted that a new report released today by the Associated General Contractors of America details how the mandatory spending cuts included in the cliff cut over $6 billion worth of federal construction projects next year alone.

Many local contractors that work on military construction projects at nearby bases are particularly vulnerable, Brooks noted, given the $2 billion hit to Defense Department construction projects included in the sequestration. In addition, funding for local highway and transit projects is likely to be cut because the sequestration cuts nearly a half billion dollars out of the Federal Highway Trust Fund. And he warned that most economists predict the fiscal cliff would undermine broader economic growth. The tax increases from the cliff alone would increase unemployment and cause the economy to contract, according to the Congressional Budget Office.

“Allowing the fiscal cliff to occur will only make our nation’s fiscal problems worse,” Brooks noted. “Construction workers can ill afford the kind of recession that the fiscal cliff would cause.” View the new construction employment figures by state or by rank.

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The Tax-Deferred Exchange

The Tax-Deferred Exchange

Is the end of Section 1031 on the horizon?
| FROM THE PRINT EDITION |
 
 

While most people outside the public accounting field are not able to recite tax code sections, those who work in the real estate industry are likely familiar with Section 1031.

As a refresher, Section 1031 of the Internal Revenue Code allows property owners to defer gain from the sale of property when they exchange it for like-kind property. Under this code, the gain is not recognized until the replacement property is sold. If the replacement property is exchanged for other like-kind property, however, the property owner can continue to defer the gain recognition.

A Brief History
The concept of trading land goes back hundreds of years to when property owners bartered with one another. Tax-deferred exchanges were officially included in the Revenue Act of 1921, which allowed two parties to simultaneously exchange property without recognizing gain. In 1979, the Starker decision expanded the rules to accommodate exchanges, known as forward exchanges, that did not close on the same day. In 1984, an amendment to the Internal Revenue Code imposed the 45- and 180-calendar-day limits. Under this amendment, owners were required to identify a potential replacement property by the 45th calendar day, post closing, and complete the exchange within the 180th calendar day, post closing. 

When Section 1031 was enacted, it had three purposes. First, it prevented unfair taxation of ongoing property investments. When property owners reinvested sale proceeds and retired debt into new property, they did not have the cash to pay taxes resulting from the gain. Thus, forcing the taxpayer to pay the tax would have been unfair. Second, Congress wanted to encourage active reinvestment; the deferral of gain through reinvestment encourages taxpayers to replace and upgrade their property. The third purpose was for administrative convenience, which ceased to be relevant years ago, as deferred exchanges have becoming increasingly complex.

The Issue
Recently, the Obama Administration’s 2017 fiscal year budget proposed a $1 million limit per taxpayer on the annual deferral of capital gain. In addition, the budget renders art and collectibles ineligible for gain deferral. 

The U.S. Department of Treasury notes that Section 1031 deferral had historically been justified on the basis that valuing exchanged property is difficult, which is no longer a valid argument. Most exchanges are complex three-party exchanges, facilitated by a qualified intermediary.

These types of exchanges were not contemplated when the provision was enacted. In addition, the U.S. Department of Treasury believes that the ability to exchange unimproved real estate for improved real estate encourages “permanent deferral” by allowing taxpayers to continue the cycle of tax-deferred exchanges.

This is not the first time that changes to Section 1031 have been proposed. Tax-deferred exchanges have been part of tax reform proposals in both the Senate and House of Representatives for several years.

Proponents of Section 1031 note that a repeal of tax-deferred exchanges will cause a decline in real estate values, as it discourages investors from selling and reinvesting in other property. Instead, investors will invest in more liquid, non-real estate investments with faster returns. Further, proponents argue that owners who have acquired property through like-kind exchanges do not have cash to pay the tax. As a result, it would be unfair for property owners to pay tax on the gain when they did not receive cash during the transfer. 

With the upcoming change in administration, no one knows what the future holds for Section 1031. For the time being, tax-deferred exchanges are an excellent tool for real estate investors. They allow owners to defer payment of capital gains tax when selling property and reinvest the proceeds in like-kind property. However, the rules can be complex. Managing them correctly is vital to taking advantage of this longtime tax code benefit. If you are considering entering into a tax-deferred exchange, make sure to consult your tax adviser