Financial Reform Bill Contains Requirement of Study of QI Regulation. The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") signed into law on July 21, 2010 creates a Bureau of Consumer Financial Protection (the "Bureau") within the Federal Reserve. The Bureau will regulate consumer financial products and services. The Director of the Bureau must conduct a study and propose legislation and/or regulations to protect consumers using QIs. The study and recommendations must be completed within 1 year after the new law takes effect, and a program or proposed regulations must be implemented within 2 years after the Director's report. Mary Foster, as a member of the Federal Legislative Committee of the Federation of Exchange Accommodators (FEA), worked on the insertion of this provision in the Dodd-Frank Act, and will continue to work with the FEA in assisting the Director of the Bureau to create regulation that will promote the security of client exchange funds. Mary is also Past President and former Board Member of the FEA. Click here to see entire release from the FEA. ***************************************** New Tax Law Changes Affecting 1031 Capital Gain Tax Rate in 2011 The maximum capital gain rate increases from 15% to 20% in 2011, in accordance with the sunset provisions contained in the law enacting the lower rate. There are no changes to the 28% rate on unrecaptured depreciation or collectibles. Medicare Contribution Tax (Code Sec. 1411) Starting in 2013, "net investment income" of individuals, estates and trusts will be subject to an additional 3.8% tax to the extent the taxpayer's modified adjusted gross income (MAGI) exceeds threshold amounts. "Net investment income" includes capital gains from sales on investment properties and rentals (property held in a passive activity). Thus, it will apply to most 1031 properties held by individuals, or by partnerships and S corporations because they pass through the income to the individual members or shareholders. It will not apply to properties used in an active trade or business or by a C corporation. The income thresholds are $250K for married couples and $200K for other taxpayers. This tax should be deferred by a 1031 exchange, although no regulations have been issued yet. The definition of net investment income states "to the extent taken into account in computing taxable income". Thus, gain deferred under Section 1031 should not be subject to the tax. Nor should gain from a principal residence that is excluded under Section 121. e.g. Single taxpayer has MAGI of $150,000, including $100,000 of gain from a rental home. The tax does not apply because the MAGI is less than $200K. If taxpayer had MAGI of $250,000, the tax would apply to $50,000 of the gain (the net investment income in excess of MAGI). If the taxpayer had MAGI of $300,000, the tax would apply to the full $100,000 of gain. | 
