Some politicians have long derided the 1031 exchange as a tax loophole only for the super wealthy. Everyday real estate investors know that exchanges don’t just benefit the wealthy, but recent studies have shown that they have benefits to the overall economy as a whole, not just those that own real estate.
Investors labor tirelessly on their investment properties on maintenance and tenant issues and the ability to defer taxes when they sell that property allows them to keep more money in the real estate market. This boosts not only the value of their investment, but the real estate market in general. A boost in value means there is more money available for things like property improvements. This creates jobs and higher quality living conditions for tenants, boosting the economy as a whole.
But just how much do 1031 exchanges help the economy?
An Ernst and Young study from 2015 indicated that if 1031 exchanges were to be eliminated, it would negatively impact the country’s GDP by $12 billion annually – and that is NET of tax revenue. A more recent study upped that number to $17 billion. Again, this is NET of tax revenue because that same study indicated that 88% of 1031 exchanges eventually end in payment of taxes. Investors use them to improve the quality of their holdings, but most often end up eventually ‘cashing out’ and paying their tax. So that means that not only do 1031 exchanges allow investors to improve their real estate and boost the economy, taxes are still getting paid. It’s a win-win!
If you would like more information on these studies and where to find them contact one of our 1031 exchange specialists today!
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