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Exchanges with a Lot to ‘Like’
Like-kind exchanges offer plenty of benefits to property owners and can be a boost to the local economy
In real estate, it does not get much better than a like-kind exchange.
The exchanges, which are part of the tax code going back to 1924, allow property owners to defer capital-gains taxes on a property as long as the sale proceeds go toward the purchase of a similar property; the replacement property must be identified within 45 days and the transaction completed within 180 days.
Like-kind exchanges aren’t just appealing to real estate investors and property owners, they also can be a boon to the economy, including financial growth and job creation, according to a new report from the National Association of Realtors.
The survey of NAR commercial and residential members found that both real estate investors and commercial-property owners highly value like-kind exchange tax rules for conducting their business. Forty percent of respondents said they had real estate transaction that would not have closed with the tax provision; 56 percent said that future projects would have been done on a smaller scale without the exchange.
Realtors are actively involved in exchanges, too. Between 2011 and 2015, 63 percent of Realtors participated in a like-kind exchange transaction. The survey found that of these transactions created between 10 and 35 new jobs, mostly from spending on building improvements following the purchase.
The exchanges also are infusing more dollars into local markets, according to respondents. Eighty-six percent said tax deferments allowed their clients to invest in improvements in the newly acquired properties, creating new construction and property management jobs.
Residential properties comprised the largest portion of recent deals, accounting for 27 percent of disposed properties and 24 percent of acquired properties, followed by apartments (17 percent of dispositions and 22 percent of acquisitions).
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