Importance of Section 1031 Like-Kind Exchanges
Posted on May 14, 2021 6:38am PDT

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.
The new administration has proposed modifying the 1031 exchange for gains
in excess of $500,000 to pay for The American Families Plan. This proposal
greatly threatens the entire commercial real estate industry, but also
a large portion of the American economy. The misconception of being a
tax loophole for the wealthy will lead to a number of unintended consequences
with the largest impact on the middle class. I strongly encourage you
to reach out to your members of congress using the following link (
https://lnkd.in/dAANd9c ) with the automated message to not limit the 1031 Exchange.
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