NMHC Releases Groundbreaking Like-Kind Exchange Study

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NMHC/NAA, joined by a broad real estate coalition, released groundbreaking research on July 9 highlighting the critical role like-kind exchanges play in helping the multifamily industry provide housing to America’s workforce. Congress is combing the entire tax code as it seeks revenue to overhaul the nation’s tax laws, and there is a significant threat that the ability to conduct like-kind exchanges could be eliminated or curtailed.

Like-kind exchange rules help the industry efficiently allocate multifamily capital and ensure that the industry can meet the increasing demand for housing.

Among other things, the study, entitled, “The Economic Impact of Repealing or Limiting Section 1031 Like-KindExchanges in Real Estate,” finds that these exchanges support lower rents.

Key findings include:

  • Assuming a typical nine-year holding period, apartment rents would have to increase by 11.8 percent to offset the taxation of capital gains and depreciation recapture income at rates of 23.8 percent and 25 percent, respectively
  • Governments collect 19 percent more taxes on commercial properties sold following a like-kind exchange than by an ordinary sale.
  • Nearly nine in 10 (88 percent) of commercial properties acquired by a like-kind exchange result in a taxable sale in the very next transaction.

For more details, please see the study fact sheet.

This latest study adds to the growing body of research pointing to the importance of like-kind exchanges. Another study released in March by Ernst & Young LLP, and sponsored by NMHC and the Like-Kind Exchange Coalition, found that eliminating like-kind exchanges would result in annual investment falling by $7 billion and labor income sliding by $1.4 billion.

NMHC/NAA will continue to advocate for retaining Section 1031 as it is currently written, reminding lawmakers that the multifamily industry needs at least 300,000 new apartments every year and cannot build without outside investment.