Many people have questions about the potential effects of eliminating the 1031 exchange. Hopefully, these effects never become reality, but it’s important to think about them and the potential impacts on the real estate market. In this article, we are going to discuss how the elimination of 1031 exchanges would impact the state of investment real estate.
Loss of State Revenue
It’s important to note how much revenue a state can generate from 1031 exchanges via deed tax, transfer tax, mortgage registration tax, higher property taxes due to greater velocity in the marketplace. These are some of the many benefits of allowing capital to move into the most advantageous sectors of the marketplace via 1031 exchange. If we eliminated 1031 exchanges, these benefits would be significantly curtailed.
Real estate ownership and taxation is different than stock ownership and taxation. With stocks, you only have taxation when you sell and trigger the realization of your gain. Real estate is different. It often takes much more time to sell and people who own real estate pay property taxes for as long as they own their properties. This is another subliminal benefit of 1031 exchanges.
Decrease in Demand
If 1031 exchanges are eliminated, I think we would see a big decrease in demand for real estate. There will be fewer small investors who are trying to climb the investment ladder. Lower property values mean you may not be able to refinance your property when it comes time to do a major capital improvement.
Minneapolis Qualified Intermediaries
At CPEC1031, LLC we focus solely on 1031 exchanges of investment real estate. If you are looking to save capital gains taxes on your next real estate sale, a 1031 exchange may be the best vehicle for you. We have twenty years of experience and can walk you through the entire like-kind exchange process from beginning to end. Contact us today at our primary offices located in downtown Minneapolis to learn more about our 1031 exchange services and how we can help!
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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