IPX1031 Insight Blog

Tax Notes: The 1921 Like-Kind Exchange Policy Still Makes Sense


IPX1031 is a full service Qualified Intermediary with highly specialized exchange divisions to handle any type of exchange transaction nationwide.

September 2021

1031 tax policy is justified. It’s proven and sound. Limiting or eliminating Section 1031 is a truly ineffective pay-for. Our own IPX1031 Suzanne Goldstein Baker’s latest piece just published in Tax News Federal  (PDF version here) explains why:

Tax Notes: The 1921 Like-Kind Exchange Policy Still Makes Sense

“In this politically charged environment, it is popular to mischaracterize section 1031 like-kind exchanges as a loophole that is emblematic of an unfair tax system. It is also popular to regard its repeal as a way to pay for other legislative initiatives without understanding the aggregate economic damage and loss of tax revenue that would result. These attitudes ignore the fact that section 1031, like other nonrecognition provisions in the code, reflects sound tax policy. That tax policy recognizes that the ultimate tax revenue raised will be greater if the taxation of transactions that promote economic activity is deferred. As discussed below, section 1031 makes as much economic sense today as it did when like-kind exchanges were added to the code in 1921.

Suzanne Goldstein Baker Tax Notes September 2021

A recent article by Donald B. Susswein, Ryan P. McCormick, and Kyle Brown addressed the tax policy case for well-established nonrecognition transactions, including transfers to partnerships and corporations under sections 351, 368, 721, and 731, as well as like-kind exchanges under section 1031.1 The authors ably point out that the tax policy rationale for deferring tax in all those transactions is that (1) the gain and resulting tax do not go away, but are simply deferred; and (2) the transferred assets generally are more efficiently managed in a way that will likely generate more income and tax revenue. 

A 2020 microeconomic impact study by professors David C. Ling and Milena Petrova2 and a 2021 macroeconomic impact study by EY3 validated the original economic expectations behind the tax policy underpinning section 1031 by quantifying the powerful economic benefits of like-kind exchanges in current terms and dollars. Both studies concluded that section 1031 is a strong stimulator of U.S. economic activity that supports significant job creation, generates substantial tax revenue, and promotes a healthy and stable real estate market.”

To read the full article in Tax Notes Federal by Suzanne Goldstein Baker and Stephen M. Breitstone, please visit the following link: The 1921 Like-Kind Exchange Policy Still Makes Economic Sense (taxnotes.com) or read the PDF of the article here.

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