ALTA Joins 30 Organizations in Support of 1031 Exchanges

March 25, 2021

ALTA joined 30 other organizations in letters to Congressional leaders and U.S. Secretary of the Treasury Janet Yellen explaining the importance of 1031 like-kind exchanges. 

The letter outlines how 1031 exchanges support jobs and investment, healthy real estate markets, and important social and environmental objectives, such as the preservation of family-owned farms and ranches and the conservation of land for the benefit of the public and future generations. Like-kind exchanges under section 1031 of the tax code allow businesses to grow organically, with less unsustainable debt, by reinvesting gains on a tax-deferred basis in new and productive assets. In this way, like-kind exchanges create a ladder of economic opportunity for minority-, veteran- and women-owned businesses and cash-poor entrepreneurs that may lack access to traditional sources of financing.

“Following years of careful legislating and regulatory rulemaking, section 1031 supports job growth, creates a ladder of economic opportunity for small businesses, cash-poor entrepreneurs, and farm, ranch, and forest owners, and constitutes an important tool for the environmental conservation of land for future generations,” the letter said. “For these reasons, like-kind exchanges will have an important role in the economic recovery and beyond.”

Like-kind exchanges will accelerate the country’ economic recovery from the pandemic by preventing real properties from languishing, underutilized and underinvested. By allowing property owners to defer capital gain when one property is exchanged for another, like-kind exchanges help get real estate into the hands of new owners with the time, resources, and desire to restore and improve them.

“This is particularly important given the need to repurpose or renovate many properties, particularly in the office, retail and hotel sectors, to meet post-pandemic needs,” the letter says. “Without section 1031, many of these properties would languish—underutilized and underinvested—because of the tax burden that would apply to an outright sale. In this way, like-kind exchanges are a powerful tool that accelerates domestic investment.”

The groups explain how 1031 exchanges helped stabilize the commercial real estate marketing during the height of the COVID-19 lockdown.

“During periods of economic stress, exchanges stimulate commerce and facilitate needed price discovery when buyers, sellers, or lenders are otherwise reluctant to engage in transactions,” the letter states. “The ability to defer the gain on the relinquished property will often motivate the acquisition of replacement property by a buyer who would otherwise wait until economic conditions had fully recovered. This activity can effectively “unfreeze” property markets and helps avoid deeper swings in property values during severe economic downturns.”

The letter also outlines how like-kind exchanges help support 568,000 jobs generating and $27.5 billion of labor income. Research at the University of Florida and Syracuse University, as well as macroeconomic modeling by Treasury’s former top tax economist, has found that 1031 exchanges spur capital expenditures, increase investment, create jobs for skilled tradesmen and others, reduce unnecessary economic risk, lower rents, support property values, and generate substantial state and local tax revenue. Roughly 40 percent of like-kind exchanges involve rental housing. ALTA and the other groups signed onto the letter believe 1031s are an important source of capital for affordable and workforce housing. Investors can use section 1031 to acquire land for the development of new housing. New limits on like-kind exchanges would increase the cost of rental housing, according to the letter.

Contact ALTA at 202-296-3671 or [email protected].