Study Argues Against Upsetting the 1031 Exchange Apple Cart
Among the changes to the tax code which then-candidate Joe Biden espoused on the campaign trail in 2020 was the elimination of the Section 1031 provision allowing favorable tax treatment for like-kind exchanges of property. Although it remains to be seen how soon, or whether, President Joe Biden acts upon this campaign promise, a new report from Hamilton Zanze and the CBRE Strategic Investment Consulting group makes it clear that lawmakers may want to think twice before supporting such a measure.
Titled “1031 Exchanges & the Public Interest: 10 Benefits for the Economy, Communities, and the U.S. Treasury,” the report details the numerous real and potential impacts that any major changes to this 100-year-old tax policy might have on the country.
“Our business, focused on the multifamily sub-sector, has managed hundreds of 1031 exchange real estate transactions for individuals and families for 20 years,” said Mark Hamilton, co-founder of Hamilton Zanze. “These individuals have been from many walks of life and have been at various points in their own financial journeys, so we thought it was important to study the potential impacts that any chances to this policy might bring to the multitude of people impacted by the commercial real estate marketplace.”
The report focuses on individuals, groups, government bodies and economic sectors that might see impacts if any changes are made. Some of the key benefits offered by the policy, and highlighted in the report, include:
1. Benefits to millions of residential renters
2. Benefits to the fiscal health and policy goals of local and state governments
3. Benefits to small, growing businesses
4. Benefits to those preparing for retirement
5. Benefits to overall financial market stability
As with any tax policy that has been intact for as long as this one has, the impacts of any significant revisions or eliminations to the 1031 exchange would be surrounded by “numerous unforeseen and unintended consequences,” says Hamilton Zanze. The report not only analyzes some of those potential consequences, but also advocates for the importance of stability in the current environment.
“During the pandemic, the 1031 exchange policy provided the support to help uphold our nation’s vibrant commercial real estate industry even amidst a highly uncertain season for businesses across a multitude of sectors,” said Justin Fossum, Hamilton Zanze research lead. “From construction contractors, to real estate brokers, to transaction attorneys and more, this industry retained millions of jobs with the help of activity afforded by this policy.”