Overview

Since 1921, U.S. tax law has recognized that the exchange of one investment or business-use property for another of like-kind results in no change in the economic position of the taxpayer, and therefore, should not result in the immediate imposition of income tax. The exchange rules permit the deferral of taxes, so long as the taxpayer satisfies numerous requirements and consummates both a sale and purchase within 180 days.  Real estate investors and commercial real estate practitioners place a very high priority on retaining the current like-kind exchange rules.

Political Advocacy

Current Legislation/Regulation

None at this time.


In-Depth

Letters to Congress
Issue summary
NAR Federal Issues Tracker


Legislative Contact(s):

Evan Liddiard,
eliddiard@nar.realtor
202-383-1083

Erin Stackley,
estackley@nar.realtor
202-383-1150

Joe Harris
jharris@nar.realtor
202-383-1226

Regulatory Contact(s):

Evan Liddiard,
eliddiard@nar.realtor
202-383-1083

What is the fundamental issue?

Since 1921, U.S. tax law has recognized that the exchange of one investment or business-use property for another of like-kind results in no change in the economic position of the taxpayer, and therefore, should not result in the immediate imposition of income tax. The like-kind exchange rules permit the deferral of taxes, so long as the taxpayer satisfies numerous requirements and consummates both a sale and purchase of replacement property within 180 days. Real estate investors and commercial real estate practitioners place a very high priority on retaining the current like-kind exchange rules.

I am a real estate professional. What does this mean for my business?

The exchange rules often provide a real estate professional with an opportunity to facilitate two transactions: the sale of the relinquished property and the purchase of the replacement property. Any curtailment of the exchange rules will make both pieces of exchange transactions more difficult to conclude and would mean that many transactions would not take place. The like-kind exchange technique is among the most important of all tax provisions for real estate investors and commercial real estate professionals.

NAR Policy

NAR opposes any change that would undermine the deferral mechanisms associated with exchanges or lead to fewer transactions.

The like-kind exchange technique is fundamental to the real estate investment sector. The current law provides investors with a great deal of flexibility in managing their real estate portfolio. Real estate is essentially an illiquid asset that requires substantial commitments of cash. Flexibility is needed in order to assure the free movement of property and capital. This, in turn, results in economic growth and job creation.

Legislative/Regulatory Status/Outlook

No bipartisan legislation restricting Section 1031 like-kind exchanges has been introduced in the 116th Congress, which began in January 2019. However, in the past, bills have been introduced in both the House and Senate that would limit the use of the like-kind exchange deferral as a way of partially offsetting the cost of various other provisions.

Of more concern, however, is the fact that the Biden presidential campaign has proposed the repeal of Section 1031 for taxpayers with incomes of more than $400,000 per year in order to offset the cost of another proprosal.  

NAR is working with other interested stakeholders to oppose the repeal or limitation of the like-kind exchange provision and to educate Members of Congress and their staffs on the importance of this provision to the economy. For example, NAR is an active member of two separate coalitions devoted to preserving the 1031 like-kind exchange. These coalitions have funded two separated studies on the impact that repealing Section 1031 would have on the economy and on the real estate sector. Moreover, the coalitions continue to have meetings with Members of Congress to explain the importance of tax-deferred exchanges in their states and districts. Also, NAR lobbyists often mention the importance of keeping 1031 when meeting with Members and staff on other issues.

NAR Committee

Federal Taxation Committee

Commercial Federal Policy Committee

References

NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require the member's nar.realtor login.


1031 Exchanges: The Basics

Like-kind Exchanges are Now Clearer (Journal of Accountancy, Oct. 1, 2020) E

What is Like-Kind Real Estate? (The Balance, Sep. 17, 2020)

1031 Exchange Rules: What You Need to Know (Investopedia, Sep. 15, 2020)

What is a 1031 Exchange and What Do You Need to Know in 2019? (The Street, Mar. 14, 2019)

How to Do 1031 Exchanges to Defer Taxes (The Balance, Jan. 9, 2019)

Rules, Forms, & Guidelines From the IRS

About Form 8824, Like-Kind Exchanges (United States Internal Revenue Service, Sep. 19, 2020)

Like-Kind Exchanges – Real Estate Tax Tips (United States Internal Revenue Service, May 22, 2020)

What is IRS Form 8824: Like-Kind Exchange (TurboTax, 2020)

1031 Exchanges for REALTORS®

Like-Kind Exchange Transactions of REALTORS® in 2016-2019 (National Association of REALTORS®, Sep. 4, 2020)

1031 Like-Kind Exchanges, Insights and Updates (National Association of REALTORS®, Jun. 29, 2020)

NAR Letter to IRS (National Association of REALTORS®, Mar. 17, 2020)

This Twist on 1031 Exchanges Opens Opportunities (Chicago Agent Magazine, Aug. 2, 2019)

1031 Exchanges Save IRS & State Taxes, Even Leaving California (Forbes, Aug. 1, 2019)

The Real Estate Investor’s Guide to Reverse 1031 Exchanges (Bigger Pockets, June 3, 2019)

Like-Kind Exchanges Help Build Communities (Forbes, March 21, 2019)

Understanding the Differences Between Opportunity Zones and 1031 Like-Kind Exchanges (MCM CPA & Advisors, March 1, 2019)

Delaware Statutory Trusts (DSTs)

What is a Delaware Statutory Trust in a 1031 Like-Kind Exchange (The Motley Fool, Jun. 18, 2020)

Kay Property and Investments, a National Delaware statutory Trust (DST) Investment Firm, Announced Today the Completion of a $14 Million DST 1031 Exchange (PR Newswire, Mar. 16, 2020) E

Simplify Rental Property Ownership with Delaware Statutory Trusts (LSL CPAs and Advisors, June 17, 2019)

Delaware Statutory Trust (The Balance, Jan. 25, 2019)

Websites

Guide to 1031 Exchanges: Basics, Resources & Intermediaries (BiggerPockets.com)—Quick overview of how 1031 exchanges work, with links to recommended resources and a list of qualified intermediaries.

Federation of Exchange Accomodators (FEA)—Professional organization for exchange specialists. Includes directory of exchange companies & specialists around the U.S.

eBooks & Other Resources

Our eBooks collection contains a plethora of both audio and electronic books for learning a diversity of foreign languages and cultural etiquette standards. Below you will find a sampling of materials available; to identify additional materials visit our Library Catalog Advanced Search page and search for Subject: International or Subject: Foreign.

How to Invest in Real Estate And Pay Little or No Taxes: Use Tax Smart Loopholes to Boost Your Profits By 40% (eBook)

The Tax-Free Exchange Loophole: How Real Estate Investors Can Profit from the 1031 Exchange (eBook)

Books, Videos, Research Reports & More

The resources below are available for loan through Member Support. Up to three books, tapes, CDs and/or DVDs can be borrowed for 30 days from the Library for a nominal fee of $10. Call Member Support at 800-874-6500 for assistance.

Building Wealth Through 1031 Exchanges, (Exchange Facilitator, LLC, 2006)

1031 Exchanges: How They Work, (Professional Exchange Accommodators, LLC, 2005)

The Tax-Free Exchange Loophole, (Wiley, 2005)


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The inclusion of links on this page does not imply endorsement by the National Association of REALTORS®. NAR makes no representations about whether the content of any external sites which may be linked in this page complies with state or federal laws or regulations or with applicable NAR policies. These links are provided for your convenience only and you rely on them at your own risk.

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Videos

Additional Section 1031 Like-Kind Exchange Resources

Like-Kind Exchange Transactions 2016-2019

Report
This report looks at like-kind exchanges involving members and assesses their views on the economic impacts of the proposed repeal of Section 1031.