A recent economic study shows vast benefits to the real estate market from like-kind exchanges, also called 1031 exchanges, and demonstrates that there would be unintended negative impacts with proposals that aim to scale back the 100-year old tax provision.
According to Florida Realtors, “Like-kind exchange rules allow taxpayers to defer tax when they exchange one property held for investment or business use for other property of a “like kind.” The exchanges contribute to a more dynamic real estate sector by eliminating potential “lock-in” effects (particularly in the case of less-productive assets).”
The economic study, done by Dr. David Ling and Dr. Milena Petrova from the University of Florida and Syracuse Univeristy, respectively, examined more than 1.6 million real estate transactions spanning 18 years from 1997 to 2014. The total value of the transactions they studied was $4.8 trillion.
“The new Ling-Petrova study demonstrates how critical like-kind exchanges are to the health and vibrancy of real estate activity in the United States,” says Roundtable President and CEO Jeffrey DeBoer, as quoted by Florida Realtors. “Acquiring and improving commercial real estate requires large amounts of capital, and section 1031 helps real estate businesses grow and expand organically – with less debt.”
“In short, like-kind exchanges allow property owners to put more of their earnings back into the private sector – hiring workers, upgrading and improving properties, and generating much-needed economic activity,” says DeBoer.
Like-kind exchanges are found to encourage investment and reinvestment, both which fuel a healthy real estate market. They also decrease debt levels in commercial and multifamily real estate transactions, help safeguard property values, and stabilize rent prices.
“There is strong economic rationale for the like-kind exchange provision’s nearly 100-year existence in the Code,” the Roundtable and coalitions partners wrote to U.S. Congressional tax writers in March. “Limitation or repeal of section 1031 would deter and, in many cases, prohibit continued and new real estate and capital investment.”
Hopefully, this new study will curb the proposals to limit like-kind exchanges,
and nothing will negatively affect the booming real estate market we have right now. To get involved and purchase the perfect piece of Miami real estate for you today, contact a RE/MAX Paradise agent!