The simple reason why the 1031 Exchange is great is the deferment of the punitive taxes on capital gains from the sale of an investment property. The better reason it is great, is the power of leverage it provides to an investor to take the built-up equity from a current holding, while the market is near or at the top as it is now and leverage that asset into a newer, bigger, less management, longer term, safer asset or even multiple assets.
This 1031 vehicle literally drives an enormous portion of the investment market as well as the reposition and redevelopment market. The net lease sector alone has mostly become its own industry within an industry.
Consider all the older retail and office buildings of your outdated, dilapidated downtown Main Street, USA. Many of these properties have been owned by the same entities for decades and now they are free of debt leaving the ownership entity with no basis. More than likely, they have no interest, much less the resources, to update, repurpose or redevelop the asset and its site. What are they to do? They sell to a merchant developer who has the resources to repurpose the site that will ultimately help begin the revitalization of the area, which in turn brings more foot traffic, more revenue and more jobs! The downtown area is once again thriving! Meanwhile, the original property owner who is looking to retire and enjoy their golden years, reinvests all of their decades long built equity that was literally collecting dust, into a newer property that in most cases may even provide a greater annual income.
These are just the surface reasons why the 1031 Exchange is great – and has been serving us so well for 100 years this year!
Now, consider the impact to the economy if the favorable tax code was to be taken away…
Long term investors no longer have any reason to sell, including the owners of the older downtown assets referred to earlier. And what is the impact of that? No revitalization of the centers of our commerce areas that made each of our hometowns great. No new tenants or restaurants which means no new foot traffic, no new jobs and an even more dwindling local economy.
What else does this mean? No new development means no need for building supplies, contractors, tradespeople, architects, designers, and the list goes on and on.
City planning departments will be cut to skeleton crews because we simply will not need them.
Investors will not be selling, so there will be little to no inventory, meaning little to no need for listing agents. The regional & national investment brokerages will all disappear almost overnight. Consider all of the industries that serve those very brokerages! Creative, technology, title & escrow, appraisers, building inspectors, environmental services, etc.
Can you get now the importance of this 1031 tax code investment vehicle and how easy it is to see why we need to do all we can to keep the 1031 Exchange just the way it is? Can you also see how CRAZY it is that our federal government is even considering taking it away?
Here’s how you can do something about it. Follow this link provided by my friends at ipx1031:
Click here:
to take action and let your legislators know how important Section 1031 is to you, your business and your clients. It only takes 30 seconds for YOU to make a difference.
If you are an agent/broker, I am happy to discuss strategies with you on how to best serve your next listing client in preparing them for a successful exchange. Please visit the site and click on the Agent’s button.
Don’t know what certain terms mean? Click here for a Glossary of Terms:
Please stay tuned and follow us on LinkedIn, Twitter, Instagram & Facebook while keeping a look out for our exchange-specific content and coming YouTube Channel!
All information is deemed to be accurate, and not advice. All investors/taxpayers should consult their CPA, tax attorney and investment advisors.
