Survey Shows Value of Like-Kind Exchanges

July 9, 2015

A survey released today by The National Association of REALTORS® shows that real estate like-kind exchanges are important in the way that real estate professionals do business.

The 2015 Like-Kind Exchanges: Real Estate Market Perspectives Report found that NAR's commercial and residential members believe these tax provisions are necessary for gaining and disposing properties, and help fuel the country's economic and job growth.

Like-kind exchanges, also known as Internal Revenue Code Section 1031, give individuals and businesses a tax deferment on gains after they get rid of of one property as long as the proceeds are reinvested in a similar property. These types of exchanges are available to individuals, partnerships, corporations, limited liability companies, and trusts.

Real estate investors and commercial property owners agree that like-kind exchanges are highly valued in their business. 40 percent of respondents said that transactions would not have occurred without this tax provision, and 96 percent believe that real estate values would go down if they were repealed.

REALTORS® participate in like-kind exchanges for many reasons besides deferring capital gains taxes; they use them as equity to buy more properties, as well as in estate planning, diversifying their portfolio, and completing development projects.

"Like-kind exchanges that allow investors and businesses to defer capital gains taxes on the exchange of similar properties bring great advantages to investors, real estate markets and the economy," says Lawrence Yun, NAR chief economist. "REALTORS® and their clients often look for better economic use of existing properties that are underutilized, which helps promote local economic development and increase the nation's gross domestic product."

Indeed, of those surveyed, 86 percent said these tax provisions allowed them or their clients to invest and make improvements in other properties, which helped to create more construction and property management jobs. Overall, 63 percent of respondents said they participated in a like-kind exchange transaction during 2011-15, which created between 10 and 35 new jobs.

Source: NAR