Commercial Investment Real Estate

NOV-DEC 2017

Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.

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COMMERCIAL INVESTMENT REAL ESTATE 14 November | December 2017 Like-Kind Exchanges IRC Section 1031 stimulates the economy, simplifies taxes, and isn't a loophole. by Bill Horan I nternal Revenue Code Section 1031 exchanges are powerful economic stimulators that are grounded in sound tax policy. Current tax reform goals are to stimulate the economy, sim- plify the tax code, and eliminate loopholes, according to the Trump administration. Section 1031 meets the first two goals, without being a loop- hole. Since it allows the deferral of tax on capital gains, 1031 like-kind exchanges stimulate the economy by encouraging both investment real estate transactions and the replacement and upgrading of businesses' machinery and equipment. By deferring capital gain recognition, 1031 like-kind exchanges help transfer properties into the hands of new owners with the ability to restore and improve them. Without Section 1031, many of these properties would languish — underused and under- invested — because of the tax burden that would apply to an outright sale. Section 1031 is neither a loophole nor a tax savings vehicle, but rather a powerful economic engine based on sound tax policy. The nonrecognition exchange policy is based on the understand- ing that the taxpayer continues with the same qualifying invest- ment, with no intervening receipt of cash, and is left in the same tax position as if the relinquished asset was never sold. This valuable tax-deferred exchange should be retained in its current form. It accurately reflects the economic reality of investment continuity in which no profit is taken, so there is no premise to tax. Capital Formation and Liquidity This nearly century-old tax policy permits efficient use of pro- ductive capital and cash flow, while allowing taxpayers to shift to more productive like-kind property, change geographic loca- tions, diversify, or consolidate holdings. Tax-deferred exchanges denistorm/Getty Images FINANCING FO C U S

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