2021 marks the 1031 exchange centennial.
A 1031 exchange is the process of selling an investment 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. This is possible through Section 1031 of the Internal Revenue Code.
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 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 play a crucial role in repositioning that real estate for its best use.
The tax benefits investors receive with a 1031 exchange drive real estate recovery. Exchanges help stimulate growth in many industries and help businesses across the country.
Industry studies have shown that Section 1031 cultivates many benefits. These benefits include shorter holding periods for the productive reinvestment of capital. They also include accelerated transactional activity and increased investment levels. Exchanges increase job creation and faster economic growth. 1031s help to promote conservation and environmental policies, which are becoming increasingly critical. Investors can exchange conservation easements to improve water quality, reduce soil erosion, and maintain essential wetland and wildlife habitats. Farmers and ranchers use 1031s to enhance their operation quality. 1031s also allow farmers to 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 about 1031 exchanges, contact Midland 1031. Call us at (239) 333-1031 or visit our website.