Reposted from The DI Wire

As Section 1031 faces threats from Biden Administration, a new research study conducted by Ernst and Young found that like-kind exchanges are expected to generate $7.8 billion in federal, state and local taxes this year.

As the Biden Administration proposes placing limits on a century-old tax deferral provision, a new research study conducted by Ernst and Young found that 1031 exchanges are expected to generate $7.8 billion in federal, state and local taxes this year.

Since 1921, Section 1031 of the Internal Revenue Code has allowed investors to postpone paying capital gains taxes on investment property sales if they reinvest the proceeds into a similar investment property within a specified time frame. Typically, once a property is sold, investors have 45 days to identify a replacement property and 180 days to complete a 1031 exchange transaction.

Ernst and Young partnered with a coalition of industry groups, such as the Alternative & Direct Investment Securities Association and the Institute for Portfolio Alternatives, to estimate the current economic activity supported by the like-kind exchange rules within the U.S. economy in 2021.

The macroeconomic study estimates that 1031 exchanges and their associated activity support approximately 568,000 jobs, generating $27.5 billion in labor income to the national economy and $55.3 billion to the U.S. gross domestic product in 2021.

In addition to the approximately $7.8 billion in federal, state and local taxes, foregone depreciation, or reduced deductions, on the replacement properties, is estimated to bring in another $6 billion per year in income tax revenue.

The Biden Administration has proposed capping gains deferred under like-kind exchanges at $500,000 to pay for the $1.8 trillion American Families Plan.

Full The DI Wire article

Full Ernst & Young study