Section 1031 like-kind exchanges benefit the economy in a myriad of ways
Commercial real estate owners, individuals, and businesses of all sizes use like-kind exchanges to trade up from a small rental to a larger apartment building, from a factory or office space that met yesterday’s needs to a business facility that positions the business for tomorrow, and to upgrade machinery, equipment or vehicles into newer assets that better meet current and future needs. Equipment and vehicle exchanges frequently take the form of trade-ins, benefitting many middle-class and small business taxpayers that are unaware that their ability to defer depreciation recapture tax emanates from Section 1031.
Farmers and ranchers use §1031 to preserve the value of their investments and agricultural businesses while they combine acreage, acquire higher grade land, or otherwise improve the quality of their operations. They rely on §1031 to preserve cash flow when they trade up to more efficient farm machinery and equipment. Farmers and ranchers trade dairy cows and breeding stock when they move their operations to a new location.
The ability to take advantage of good business opportunities stimulates transactional activity that generates taxable revenue for brokers, lenders, appraisers, surveyors, inspectors, insurers, equipment dealers, manufacturers, suppliers, attorneys, accountants and more. This transactional velocity also creates opportunities for smaller businesses to acquire entry-level facilities and used equipment from which to launch and grow their fledgling businesses.
Qualified Intermediaries Are Central to Section 1031
Professional Qualified Intermediaries (QIs), or the unrelated third-party professionals who facilitate like-kind exchanges, are central to Section 1031. QIs are knowledgeable in the details and ethics of Section 1031, are required by law, maintain the integrity of the transaction, and prevent abuse of Section 1031.