The National Association of Realtors (NAR) conducted a survey that shows 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. NAR's Like-Kind Exchanges: Real Estate Market Perspectives 2015 surveyed both commercial and residential members. "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," said NAR Chief Economist Lawrence Yun. "Realtors® and their clients often look for better economic use of existing properties that are underutilized, which helps promote local economic development and increase the nation's gross domestic product."
Internal Revenue Code Section 1031, is a provision that has been in the tax code since 1924. 1031 is the common name referred to for a like-kind exchange, and it provides individuals and businesses with critically needed tax deferment on gains after the disposition of a 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 survey revealed 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 said even if the project would have occurred it likely would have been smaller in scale.
Survey respondents said the primary reason that they or their clients participated in a like-kind property exchange, aside from the deferral of capital gains taxes, was for equity to acquire additional properties. Other reasons were for estate planning, portfolio diversification and completion of a development project. The tax savings resulting from like-kind exchanges are also helping bring more capital into local markets.
Eighty-six percent of respondents said 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 opposes any legislation proposed that would repeal or limit the ability to conduct like-kind exchanges.
Lauren Bunting is a licensed REALTOR®/Associate Broker with Bunting Realty, Inc. in Berlin, MD.
Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
