Colorado Biz OnLine Feature – Capping 1031 exchanges threatens ability to reinvest in minority communities

A critical investment tool which has been central to the rebuilding of our American economy – especially in diverse communities – is at serious risk as a provision in the $1.8 trillion American Families Plan is under consideration in Washington, DC. 

The proposed cap on 1031 exchanges at $500,000 included in the plan is shortsighted and counterproductive. A cap on 1031 exchanges right now would severely restrict the ability and willingness to reinvest in commercial real estate and redevelop properties at a time in our nation’s economy when eager, courageous, and committed investors are needed more than ever. 

IRC 1031 like-kind exchanges have allowed investors to defer taxes on the sale of a property if the proceeds are reinvested in a new property. 1031 exchanges have always been a cornerstone of a healthy and vibrant commercial real estate market. An academic study  by Professors Ling and Petrova confirmed that investors who leveraged 1031 exchanges made appreciably greater capital investment into their properties than those without an exchange. 

Strategic reinvestments to redevelop underperforming properties have generated immediate economic benefits – including jobs, labor income, property taxes and Federal taxes – far in excess of the Federal taxes deferred.   

Without 1031 exchanges, many of my (Lippitt) clients would do nothing.  Currently, investors large and small can defer taxes, add capital, and buy property that wouldn’t be possible without 1031.  Some use it to upsize, others to downsize.  Either way,  the taxes are paid in full at upon sale. 

Needed Capital for in Underserved Communities

More recently, the Black American community has increased its share of the commercial real estate investment market through the prudent use of 1031 like-kind exchanges, making a critical reinvestment in their communities while building personal wealth. 

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