This section of the tax code has been around since 1921 and has been a great stimulus for the economy. This isn’t just another loophole that allows the rich to get richer, while costing the government large amounts of missed tax revenue. By allowing investors to reinvest all of their money, that additional investment goes toward expansion, which means more jobs in many cases, more tax revenue and something we all want, a stronger economy. So let’s take a look at what would happen if this was repealed or changed. A study in 2015 by finance professors Dr. David Ling of the University of Florida’s Warrington College of Business and Dr. Milena Petrova of Syracuse University’s Whitman School of Management looked at 1.6 million transactions over 18 years. The study concluded that in 2011the static present value of lost tax revenue to the treasury from exchanges was between $200 million and a high of $3 billion. This number, while not even close to making a dent in the overall deficit of trillions of dollars, is still overstated because it assumes all of the exchanges would have been disposed of in fully-taxable sales. They study estimated that exchanges are associated with a higher investment of approximately 33% of value compared to acquisitions by the same investor following the sale of their property. This concluded that in order to offset the increased tax cost, prices would need to decline and rents increase.  In local markets where investors are moderately taxed, the study estimated prices would need to decline 12% to maintain investor returns and rents eventually would need to increase from eight to 13%. Prices and rent effects would be more pronounced in higher tax states. It also found that the properties used in exchanges tended to be larger, newer, and have lower vacancy rates. Capital expenditures also tended to be higher in exchanges while debt was lower. In summary, the study found like kind exchanges to be associated with an increased investment in subsequent properties, reduced leverage, which reduces system-wide risk, and shorter hold periods. The fact I found to be most interesting is that the study found 88% of properties acquired in 1031 exchanges were disposed of by a taxable sale and the taxes averaged 19% higher when an exchange is followed by a sale then those paid when an ordinary sale is followed by an ordinary sale. When I first heard about the bi-partisan support for the repeal of exchanges, I was shocked.  Just from being involved in the industry for many years, I know what a detrimental effect it would have on the economy, but when you look at the actual numbers, the effects could be catastrophic for our economy. The worst part is that the short term potential increase in tax revenue is so insignificant. After the horrible recession we just went through, to consciously set the economy back and start what could be a very scary looking spiral would be a travesty. Whether or not you are in the real estate industry or not, as real estate is such a large part of our economy, this can have a major impact on the country as a whole. As many real estate investors are also small business owners, who we all know make up a large portion of the economy, the far reaching effects of this are very grave. If this resonates with and you would like to learn more or support the efforts to keep 1031 alive, please visit www.1031taxreform.com. You will find many resources including the full study mentioned in this article, additional information on the subject, as well as customizable letters that you can send or email to to congress. Michael Packman  is chief executive officer at PNI Capital Partners, Westbury, N.Y. PNI Capital Partners Inc. is a branch office of, and offers securities through Axiom Capital Management, Inc. member FINRA/SIPC. PNI Capital Partners, Inc. and Axiom Capital Management, Inc. are independent of each other. PNI Capital Partners does not offer tax advice. Please consult your tax professional for tax advice. Tags: