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How 1031 Exchanges Stimulate the Economy

1031 Exchanges have had a positive impact on the United States economy since 1921. The ability to defer capital gains, and various other levels of tax, incentives reinvestment, encourages real estate transactions, and creates jobs to name a few. Learn more about how 1031 Exchanges stimulate the economy.
How 1031 Exchange stimulate the economy
  1. Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange s Come in All Sizes
    Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange s are one of the few incentives available to and used by taxpayers of all sizes. Individuals, corporations, LLCs, etc can utilize 1031 exchanges. In fact, 60% of all exchanges involve properties less than $1 million.
     
  2. Efficient Use of Cash Flow
    Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange s allow taxpayers to change geographic locations, diversify, or consolidate holdings, or shift to more productive like-kind property without paying unnecessary taxes, in turn stimulating a variety of economic sectors.
     
  3. Promotes Domestic Investments
    Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange s require owners of domestic real estate to reinvest in US real estate, keeping the money within the US economy.
     
  4. Encourages the Free Flow of Real Estate Transactions
    Postponing gain recognition on the sale of real estate through a Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange encourages transactions that would otherwise be delayed or abandoned.
     
  5. Provides Continuity of Income Producing Investments
    Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange s allow farmers and ranchers, who typically sell property at retirement, to reinvest 100% of their proceeds into a passive-income property.
     
  6. Taxes Will Be Paid - One Way or the Other
    Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange s allow for tax deferral, not tax elimination. The taxes will eventually be paid either upon the sale of replacement property without an 1031 exchange or through increased income tax due to foregone depreciation, or by inclusion in a decedent’s taxable estate.
     
  7. Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange s Create More Jobs
    Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange s promote additional real estate transactions. Without Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange s there would be less need for various jobs extending to real estate, title insurance, construction, mortgage, and other related industries.
     
  8. Preserves Cash Flow
    Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange s preserves cash flow and eliminates liquidation of other assets or increased needs for debt financing.

     

Source: Federation of Exchange Same as intermediary, facilitator, or Qualified Intermediary. The party who facilitates a tax-deferred exchange by acquiring and selling property in an exchange to aid the taxpayer in complying with Section 1031 and all applicable rules. Accommodator s (FEA) Impact of §1031 on the Economy 5-3-2018

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