WASHINGTON, DC—With 1031 exchanges facing the ongoing possibility of being reformed out of existence, the National Association of Realtors has issued a survey showing that like-kind exchanges are an important vehicle for buying and selling properties, both commercial and residential. Survey respondents put a high priority on like-kind exchange rules as they're now constituted.

Sixty-three of the survey's respondents said they had participated in at least one 1031 exchange over the past four years. Forty percent indicated that transactions would not have occurred in the absence of the tax provision, while 56% said even if the deals had occurred they likely would have been smaller in scale without a like-kind exchange, which has been part of the Internal Revenue Code since 1924.

“Like-kind exchanges that allow investors and businesses to defer capital gains taxes on the exchange of similar properties bring great advantages to investors, real estate markets and the economy,” says Lawrence Yun, NAR's chief economist. “Realtorsand their clients often look for better economic use of existing properties that are underutilized, which helps promote local economic development and increase the nation's gross domestic product.”

Aside from the deferment of capital gains taxes, the primary motivation for participating in a 1031 exchange was to obtain equity for buying additional properties, survey respondents said. Other reasons included estate planning, portfolio diversification and completing a development project.

The tax savings resulting from like-kind exchanges are also helping bring more capital into local markets, NAR says. Eighty-six percent of the survey respondents said the savings from tax deferment allowed them or their clients to invest additional capital and make improvement in their acquired properties, often creating new jobs in the process. Survey results were collected among NAR members this past January.

NAR's position is that like-kind exchange transactions are fundamental to the real estate investment sector, and that repealing the tax provision would have negative repercussions. “Any tax reform plan repealing like-kind exchanges would hurt investors and small businesses, increase financial leverage, weaken growth and the economy, and result in the loss of jobs,” says NAR president Chris Polychron.