2021 marks the 1031 exchange centennial.
As the name suggests, a 1031 exchange (Section 1031 of the Internal Revenue Code) is the process of selling a property in exchange for a new investment property. As long as this transaction is a “trade up” in value and debt, taxes are completely deferred.
Needed Now More Than Ever
Section 1031 has been an essential part of the federal tax code for 100 years. In today’s world, 1031s are needed to help the real estate market recover from the effects of COVID-19. Many retail and office spaces are vacant or underutilized as businesses move to a virtual operating model. 1031 exchanges will play a crucial role in repositioning that real estate for its best and highest use.
The tax benefits that investors receive when conducting a 1031 exchange is vital in driving the real estate recovery process. They help stimulate growth in multiple industries and help businesses of all sizes across the country.
Industry studies have shown that Section 1031 cultivates numerous benefits such as shorter holding periods for the productive reinvestment of capital, accelerated transactional activity, increased investment levels, increased job creation, and faster economic growth. 1031s also help to promote conservation and environmental policies, which is becoming increasingly critical. Conservation easements can be exchanged to improve water quality, reduce soil erosion, and maintain essential wetland and wildlife habitats. Farmers and ranchers use 1031s to enhance their operation quality, acquire higher grade land, or combine acreage.
The Test of Time
The economic and investment benefits of Section 1031 have remained relevant and withstood the test of time. Without the tax-deferral benefits that 1031 exchanges provide, business owners and investors may be forced to downsize without enough cash flow to acquire replacement property or could be required to pay tax on the gain and depreciation recapture.
The best way to ensure the retention of IRC Section 1031 is to tell your legislators about how 1031 exchanges have worked for you. Express that you want to preserve Section 1031 in any future tax reform legislation. Click here to contact US Senators and Representatives today.
For questions regarding 1031 exchanges, contact Midland 1031 at (239) 333-1031 or visit www.midland1031.com.