The updated 2020 microeconomic impact study by Professors David Ling and Milena Petrova is complete and available for viewing. The work is a result of a year-long effort by FEA and members of the real estate 1031 coalition to produce updated versions of the groundbreaking research that Professors Ling & Petrova conducted on like-kind exchanges in 2015.
The updated research concludes that exchanges spur capital expenditures, increase investment, create jobs for skilled tradesmen and others, reduce unnecessary economic risk, lower rents, support property values, and generate substantial state and local tax revenue.
Key findings of the Ling and Petrova study include:
- Approximately 10-20% of all commercial real estate transactions involve a 1031 and that a broad range of taxpayers – both small and large – utilize like-kind exchanges.
- Section 1031 is an important source of capital for affordable and workforce housing. Roughly 40% of like-kind exchanges involve rental housing.
- Taxpayers engaged in like-kind exchanges invest significantly more capital into their replacement properties than non-1031 purchasers, and take on less debt.
- Eliminating like-kind exchanges would create a lock-in effect resulting in fewer transactions, price declines, and less liquidity in the market. Removing the lock-in effect allows taxpayers to preserve their investment capital and acquire larger properties, upgrade facilities, repurpose assets, and redeploy their capital into other geographic areas. These activities create jobs and contribute to the local and state tax bases, which in turn results in higher property tax revenue.
- The overwhelming majority of like-kind exchanges are eventually sold in a taxable sale. Less than 20% of transactions are repeat exchanges.
- The present value of lost tax revenue is significantly lower than estimates forecasted by the Joint Committee on Taxation (JCT). The study’s authors estimate the present value of lost revenue from like-kind exchanges is $20 billion over five years compared to the JCT’s estimate of $51 billion.