The National Association of Realtors® is engaged in important advocacy work in DC to protect Section 1031 Like-Kind Exchanges. Over the past several months, NAR has been an active participant in several studies and surveys to determine how the real estate industry, and all industries use 1031s, and what the effect on the economy will be if they are eliminated from the tax code.
Below is a link to the Ling-Petrova study, which looks at 1031s in the real estate industry only and their effect on the economy. The results of the study were very favorable to NAR’s position, as highlighted below:
“In contrast to the common view that replacement properties in an exchange are frequently disposed of in a subsequent exchange to potentially avoid capital gain and depreciation tax liability indefinitely, we find that in 88 percent of the cases in our dataset investors dispose of properties acquired in a 1031 exchange through a taxable sale. The estimated taxes paid when an exchange is followed by a taxable sale are on average 19 percent higher than taxes paid when an ordinary sale is followed by an ordinary sale.”
This means, in short, that in almost all cases, taxpayers using 1031s are not deferring taxes until death, as many critics charge, but are paying substantially more taxes when the property is next sold.
“Overall, our analysis suggests that the cost of like-kind exchanges is likely largely overestimated, while their benefits are overlooked. The elimination of real estate exchanges will likely lead to a decrease in prices in the short-run, followed by an increase in rents in the longer run. These negative effects will be more pronounced in high tax states. Elimination will also likely produce a decrease in real estate investment, increase in investment holding periods, and an increase in the use of leverage.”
NAR participated in meetings at the Treasury Department, and meetings with various Congressional offices and Committees, including the Joint Committee on Taxation, the House Ways and Means Committee, and the Senate Finance Committee. Members also participated in a bipartisan, bicameral Congressional staff lunch and briefing on the 1031 study.
In addition to the Ling-Petrova study results, NAR has also published the results of the NAR 1031 Survey, which highlights the different ways that the real estate industry utilizes 1031s.
Bill Brown, NAR’s First-Vice President and a Commercial REALTOR®, wrote an op-ed which that was featured in the San Francisco Examiner regarding 1031 exchange. Read the op-ed here: http://www.sfexaminer.com/like-kind-property-exchanges-are-key-for-business/
CLICK THE LINKS BELOW to read the study and the report:
Information above was provided by Erin K. Stackley, Policy Representative – Commercial Real Estate, National Association of REALTORS®