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Study Quantifies Importance Of 1031 Exchanges To Industry, Economy


Three university professors argue “like-kind” property exchanges may be driving economic growth in the U.S.

The study by professors David Barker from the University of Iowa, David Ling from the University of Florida and Milena Petrova from Syracuse University shows the exchanges, which are under Section 1031 of the U.S. tax code and are at risk of being eliminated, keep deals flowing. They foster an increase in investment activity by allowing taxpayers to exchange a business or investment property for a similar one, thereby preventing investors from being stuck with underperforming assets. The 1031 exchange program also allows real estate owners to allocate resources better and decrease debt levels in commercial and multifamily transactions, The Real Estate Roundtable reports.

On the flip side, if the exchange were to be abolished, research found there could be a short-run drop in property values with declines ranging from 4.66% to 8%. Meanwhile, a repeal would likely generate less than $500M per year for the Treasury.

The report by Barker, Ling and Petrova concluded that eliminating the 1031 exchange could cause more harm than good because it would reduce market values and disrupt local real estate markets while providing only minor benefits to the Treasury.