As members of the Federation of Exchange Administrators (FEA), Accruit is an active participant in the work that is being done to preserve Section 1031 of the Internal Revenue Code (IRC). The comprehensive set of tax laws created by the Internal Revenue Service (IRS). This code was enacted as Title 26 of the United States Code by Congress, and is sometimes also referred to as the Internal Revenue Title. The code is organized according to topic, and covers all relevant rules pertaining to income, gift, estate, sales, payroll and excise taxes. Internal Revenue Code Internal Revenue Code . The FEA is incredibly important to our industry and we are proud to be members and support the work they are doing.
The History of 1031 Exchange
IRC Section 1031 will be 100 years old in 2021, and the intent behind its creation was to encourage active reinvestment within our communities by deferring the payment of tax on gain when the full value is rolled over into other real estate. The benefit to investors in utilizing a 1031 exchange is that the capital gains taxes are deferred, allowing them to use those funds to increase their level of investment. In fact, according to an often-cited study, 88% of properties involved in an exchange are later sold in a taxable transaction (Ling & Petrova 2015).
As with all good policy, 1031 exchange has withstood the test of time and has continued to evolve with the addition of regulatory measures (e.g. the requirement of a Qualified A person acting to facilitate an exchange under section 1031 and the regulations. This person may not be the taxpayer or a disqualified person. Section 1.1031(k)-1(g)(4)(iii) requires that, for an intermediary to be a qualified intermediary, the intermediary must enter into a written "exchange" agreement with the taxpayer and, as required by the exchange agreement, acquire the relinquished property from the taxpayer, transfer the relinquished property, acquire the replacement property, and transfer the replacement property to the taxpayer. Intermediary , such as Accruit). The positive effect on our economies are still just as relevant today as they were in 1921.
Used by a variety of investment and business use taxpayers, residential rental property, agriculture and conservation, and many other types of real estate, 1031 exchange transactions represent a broad cross-section of taxpayers. In addition, 1031s promote the growth of small business by providing additional liquidity of investment dollars to purchase properties of an increased value.
The Economic Impact of 1031 Exchange
Our CEO, Brent Abrahm, previously wrote about how 1031s build America. Not much has changed in five years since this was written, and the importance of our industry has never been more apparent than it is right now. The impact of the COVID-19 global pandemic has had a grave impact on Mainstreet America as businesses have had to close operations either temporarily or permanently. The infusion of cash into local economies that comes as a result of 1031 exchange transactions influences not just real estate, but the labor and construction markets as well.
Utilizing 1031 exchange gives taxpayers options to grow and diversify their real estate holdings. It allows them to invest in new housing programs in their communities. 1031 exchange sustains farms and ranches, building businesses that can be passed down for generations. There are a variety of ways that real estate investors use 1031 exchange to grow and diversify their portfolios, and when they do, the communities around them benefit.
Help Us Preserve 1031 Exchange
As 1031 exchange is being threatened in Washington, the FEA has put together a piece that explains the economic benefits of 1031 exchange in our local communities. We invite you to read the piece the FEA has created, then ask you to contact your state representatives and ask them to preserve 1031 exchanges.
With three past Presidents of the FEA and five board-level members on our staff, Accruit is committed to ensuring that this industry continues for another 100 years and beyond.