Like-Kind Exchanges

The like-kind exchange rules, first enacted in 1921 and later replaced in 1928, recognize that the exchange of one property held for investment or business use for a similar property does not change the economic status of the taxpayer and therefore should not be taxed. The rules allow capital to flow freely among investments, encourage commerce and ultimately support US economic growth and job creation. As they apply to real estate, like-kind exchange rules have led to a more dynamic real estate sector – one that encourages reinvestment and construction activity and allows real estate owners to better allocate resources. The rules also lead to lower levels of debt in commercial and multifamily real estate transactions.

The tax reform proposal introduced in 2014 by former Chairman Dave Camp (R-MI) would have eliminated like kind exchange deferrals. President Obama, in his FY2015 and FY2016 budgets, proposed to limit the deferral of gain on real property like-kind exchanges to $1 million. Nareit, along with other organizations, opposed Obama’s proposal, arguing that if enacted it would undermine the real estate marketplace, reduce capital investment and discourage job-creating property improvements and land conservation efforts.

STATUS: Legislation has yet to be introduced.