When Congress enacted the first predecessor to the 1031 exchange, they allowed for the exchange of property tax deferred. It was a law that came about after World War I, in which the United States had just spent a lot of money fighting a war in Europe and they had increased taxes during the war to fund the war effort. When the war was over, they needed to find a way to stimulate the economy to dig themselves out of the debt they had incurred. The first iteration of 1031 allowed the swapping of properties to occur. That provision didn’t just relate to real estate at the time. That provision allowed for the exchange of properties but it was anticipated to be a simultaneous swap. So in 1921 people were doing old fashioned horse swaps with actual horses as the property in question.
This provision was really intended to promote transfers. The government didn’t want people to be locked in. They wanted capital to flow to the most advantageous investment, thus stimulating the economy and creating jobs.
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