Real Estate like-kind exchanges are an important vehicle for disposing of and acquiring properties and support the nation’s financial growth, job creation and economy, according to a new report from the National Association of REALTORS.
The Like-kind Exchanges: Real Estate Market Perspectives 2015 survey of NAR’s commercial and residential members found that real estate investors and commercial property owners place a very high priority on current like-kind exchange tax rules; 40 percent indicated that transactions would not have occurred in the absence of the tax provision, and 56 percent says even if the project would have occurred, it likely would have been similar in scale.
“Like-kind exchanges that allow investors and businesses to defer capital gains taxes on the exchange of similar properties bring great advantages to investors, real estate markets and the economy,” says NAR Chief Economist Lawrence Yun “REALTORS and their clients often look for better economic use of existing properties that are underutilized, which helps promote economic development and increase the nations grow domestic product.
Internal Revenue Code Section 1031, a provision that has been in the tax code since 1924, provides individuals and businesses with critically needed tax deferment on gains after the disposition of property as long as the proceeds are reinvested in a similar property through a like-kind exchange. Replacement properties must be identified in 45 days and the transaction completed within 180 days.
The tax savings resulting from like-kind exchanges are also helping bring more capital into local markets. Eighty-six percent of respondents says the savings from tax deferment allowed them or their clients to invest additional capital and make improvement in their acquired properties; these investments are generally responsible for the creation of new jobs, such as in construction and property management.
NAR believes like-kind exchange transactions are fundamental to the real estate investment sector, and repealing the tax provision would have negative effects across real estate markets and the industry.
“Like-kind exchanges help investors more efficiently allocate capital and resources with less borrowed money into new investments that drive economic activity in communities across the nation”, says NAR president Chris Polychron. “Any tax reform plan repealing like-kind exchanges would hurt investors and small businesses, increase financial leverage, weaken growth and the economy, and result in the loss of jobs.