CHICAGO, April 2, 2013 /PRNewswire/ -- After several years, real estate values are beginning to recover and activity is steadily increasing. It's a promising trend that needs to be supported, not thwarted. IRC Section 1031 like-kind exchanges are one of the best ways to support it. Improving conditions in the real estate market could be reversed if tax reform efforts in Washington D.C. impact taxpayer's ability to utilize Section 1031, according to David Brown, President of the Federation of Exchange Accommodators (FEA), a national trade organization for professionals specializing in the field.
Property values in the commercial real estate sector are not rebounding as quickly as the general housing market. Investors, lawmakers, REALTORS® and other real estate professionals continue to search for ways to encourage investment in commercial property and increase transaction volume. Like-kind exchanges under IRC Section 1031 definitely help - eliminating them would certainly hurt.
The use of a Section 1031 like-kind exchange has historically been the vehicle that has ensured continued investment in commercial, agricultural and rental real estate. Section 1031 is also substantially used by businesses to exchange non-real estate assets, including trucks, trailers, containers, railcars, airplanes, agricultural equipment, other heavy equipment, livestock and other assets. A Section 1031 exchange allows investors to upgrade and expand their facilities and equipment, redeploy assets to other geographical areas, and capitalize on new labor pools. At the same time, a Section 1031 exchange requires that the proceeds received from the sale of domestic real estate be reinvested within 180 days in property within the United States - thereby serving as a critical stimulus to the real estate market and a vehicle to keep investment dollars on our shores.
Repealing or restricting IRC Section 1031, in the guise of tax reform, has the potential to quash the nascent real estate recovery. The House Ways and Means Committee has established eleven working groups that are exploring various tax reform initiatives - including a possible repeal or modification of Section 1031. Considering that the maximum federal capital gains tax rate was raised by two-thirds this year, and upon factoring in state taxes, repeal of or substantial changes to Section 1031 could force property owners to hold properties rather than sell, perhaps contributing to further erosion of market conditions.