INDIANAPOLIS, Sept. 16, 2020 /PRNewswire/ -- ADISA, the
nation's largest trade association for the alternative and direct
investment space, announced today the results of its co-sponsored
study, The Tax and Economic Impacts of Section 1031 Like-Kind
Exchanges in Real Estate, which concluded that the elimination
of Section 1031 exchanges would disrupt many local property
markets, harm both tenants and owners as well as hurt small
investors.
Conducted by Professor David
Ling, Ph.D., of the University of
Florida, and Associate Professor Milena Petrova, Ph.D., of Syracuse University, the study also concludes that
the elimination of real estate related like-kind exchange would
likely lead to:
- a decrease in commercial real estate prices in many
markets,
- less reinvestment in commercial and residential real
estate,
- a greater use of leverage to finance acquisitions, and
- an increase in investment holding periods that would result in
a decrease in market liquidity and a slowdown in related
industries.
"ADISA is a strong and continuous advocate for Section 1031
exchanges, a vital tool that functions to increase investment and
acts to stimulate the overall economy," said ADISA Executive
Director, John Harrison. "Because of
their complexity, Section 1031 exchanges are often misunderstood.
Many have always believed in the strength and benefit of Section
1031 exchanges, but studies like the new one from Ling
and Petrova, The Tax and Economic Impacts of Section 1031
Like-Kind Exchanges in Real Estate, work to prove the value
through statistical data. And this data shows how the elimination
of like-kind exchanges would have a widespread and substantial
effect on the real estate market."
As part of the study, the authors analyzed CoStar data from
approximately 816,000 property transactions that took place in 880
core-based statistical areas from January 1,
2010 until June 30, 2020, with
a median price of $1.1 million and a
total transaction volume of $3.4
trillion. Additionally, Drs. Ling and Petrova reviewed
Marcus & Millichap Research services data on the share of
exchanges via property type and asset class in transactions that
took place from 2017 to 2019, and also corroborated with a
July 2020 survey by the National
Association of Realtors. Finally, the authors took into account
exchange data from Investment Property Exchange Services Inc. Using
the data presented, they found the following:
- Of the commercial real estate transactions that took place
between January 1, 2020 and
June 30, 2020, Section 1031 exchanges
likely made up 10% to 20% of the share of those sales.
- The median sale price of a property involved in an exchange in
2018 and 2019 equaled approximately $500,000, demonstrating that 1031 exchanges are
not primarily used by large institutional investors, but enjoy
broad use across a range of taxpayer types, income levels and
property values.
- Approximately 63% of the value of immediate tax deferral is
eliminated by reduced depreciation deductions in the replace
property as well as increased capital gain and depreciation
recapture taxes.
In The Tax and Economic Impacts of Section 1031 Like-Kind
Exchanges in Real Estate, the authors also conclude that if
like-kind exchanges were eliminated, there would be little
additional tax revenue generated, a potential for upward pressure
on real estate-related rents in the long-run, and a potential
secondary effect that might include decreased employment in real
estate and related sectors.
A full version of the study can be found here.
ABOUT ADISA
The Alternative & Direct Investment
Securities Association is the nation's largest trade association
representing the retail alternative investment space. ADISA's
members are typically involved in non-traded real estate investment
trusts, business development companies, master limited partnerships
and private and public funds (LPs/LLCs), 1031 exchange programs
(DSTs/TICs), energy and oil and gas interests, equipment leasing
programs, or other alternative and direct investment offerings. The
association was founded in 2003 and has approximately 5,000 members
who are key decision makers, representing more than 220,000
professionals throughout the nation – including sponsor members who
have raised in excess of $200 billion
in equity and serve more than 1 million investors and growing.
Contact: Jill Swartz
Spotlight Marketing Communications
jill@spotlightmarcom.com
949.427.1389
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SOURCE ADISA