Importance of Section 1031 Like-Kind Exchanges

William Stroud

Real Estate Attorney | Finkel Law Firm LLC

Luke is spot on. The first “like-kind exchanges” came from Revenue Act of 1921. Section 1031 exchanges, as we know them today, began in 1924. Changes and amendments have been added over the years but nothing like what the current administration is proposing. 1031 exchanges have significantly benefited not only commercial real estate investors but also the economy in general. By deferring tax liabilities, exchanges can help preserve scarce investment capital that investors can use to acquire larger properties, upgrade portfolios, and make capital improvements. Those activities create jobs and expand state and local governments’ tax bases. 1031 exchanges also make commercial real estate, which is highly illiquid, more marketable. Increased liquidity is especially important to non-institutional investors in inexpensive properties, who account for most of the like-kind exchange market. A

nd at a time when low housing stock persists in many markets, 1031s offer a viable option for investors to transform underused or vacant commercial properties into multifamily and other residential developments, including affordable housing. Many examples here in Charleston which show how 1031 exchanges provide major economic benefits to BOTH the community as well as the investors behind them.