An Exceptional Exchange Experience, Made Easy. |
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1031 Exchanges: A Powerful Growth & Planning Strategy for Business Owners |
It is no secret that real estate investors utilize Section 1031 to help grow their real estate portfolio with pre-tax dollars, but 1031 exchanges are just as beneficial for business owners. They allow businesses to move into more efficient properties while keeping more cash in their business, enabling the business to grow faster and have more employees with less leverage.
Benefits for Business Owners
When exchanging, in addition to deferring the capital gains, you also defer the depreciation recapture. For business owners who took bonus depreciation in recent years, this is especially beneficial and helps keep valuable capital invested in the business.
Following are a few examples of how 1031 exchanges can help:
- Expand business into multiple locations.
- Structure a sale-lease back to free up capital and use exchange funds to acquire or lease a second and maybe more locations. Note a leasehold interest of 30 years or more, including options, qualify as real property. Exchange funds can be used to prepay rent and/or fit out the space through an improvement exchange.
- Relocate to a better facility (more desirable location, more efficient building, additional space, increased parking, etc.).
- Couple with tax incentives sometimes offered by counties or cities.
- Partner with SBA or redevelopment authority to obtain favorable financing opportunities.
- Refinance the replacement property to free up cash to be used for any purpose.
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The power of a 1031 exchange extends to real property used for business purposes. 1031 exchanges empower many strategies and goals, whether a business owner is looking to expand, move, or is seeking an exit strategy. |
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The 1031 CORP. Exchanging Thoughts Blog
Looking for another perspective on 1031 exchanges and the real estate industry?
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Upcoming Webinars
>> Thursday, May 2, 2024
12:00 Noon Eastern
>> Thursday, June 6, 2024
12:00 Noon Eastern
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1031 CORP. provides an easy-to-follow overview of 1031 exchanges and their many benefits. We'll also review the requirements of a successful exchange and the essential role of 1031 CORP. to keep the exchange transaction simple for all parties. |
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The 1031 CORP. Team on the Road |
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1031 CORP., QIs Advocate for 1031s on Capitol Hill |
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Margo McDonnell and Marissa LoCascio, 1031 CORP.’s president and senior vice president, respectively, advocated for 1031 exchanges as part of an advocacy day at the Federation of Exchange Accommodator’s (FEA) Mid-Year Meeting in Washington, D.C. The event, held in April, brought together Qualified Intermediaries across the country to speak with legislators, committees and staff members on Capitol Hill. Education is a key tool for efforts to preserve the effectiveness of Section 1031 for investors, business owners, mission-driven organizations, and the communities where they operate. The “Day on the Hill” is an annual part of the FEA meeting.
Cuts and limitations of Section 1031, the provision in the Internal Revenue Code that enables 1031 exchanges, are often seen as a “pay for,” or a potential source of funding, for new laws.
The Biden Administration budget for 2025 proposes a limitation on Section 1031, capping the deferral to $500,000 for single filers. This limitation has been proposed every year during the Biden Administration. A full repeal was proposed during both the Obama and Trump administrations. Each of these proposals would have effectively, or outright, eliminated 1031 exchanges as an option for real estate owners and businesses. However, strong advocacy efforts by industry associations and businesses over the course of these administrations has successfully saved 1031s.
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1031 CORP.'s Marissa LoCascio (above), Margo McDonnell (below) and peers visited with Members of Congress to educate and advocate for Section 1031, as part of the FEA's advocacy day. |
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The Joint Committee on Taxation (JCT), the nonpartisan budget office that estimates the revenue and cost of provisions in the federal tax code, estimates that the proposed cap of Section 1031 would raise $1.97 billion to fund new laws. However, the tax revenue from 1031 exchanges provides the federal government with nearly $19 billion, nearly 10 times as much, each year! Legislators often overlook and misunderstand this revenue.
Another strong argument often overlooked is the significant impact of 1031 exchanges on the national and local economies. In 2021, 1031 exchanges created more than 976,000 jobs and $48.6 billion in labor income, and added $97.4 billion to US GDP. They are particularly important during times of market stress, creating resilience and liquidity in the market when financing is difficult.
1031 exchanges are used for housing, retail, commercial, industrial, agricultural, and conservation applications. Nearly 30% of all agricultural transactions involve a 1031 exchange. The provision has helped communities, as well. In one example from Illinois, a 1031 exchange allowed a large investor to convert a shuttered, blighted mall into affordable housing. In another example, 1031 exchanges brought a grocery store and commercial space to an impoverished neighborhood in Chicago.
The preservation of Section 1031 has bipartisan support, but many legislators have misconceptions and misunderstand the true power of 1031 exchanges. Education about the benefits and positive impact on investors, government, and the economy is a continuous need.
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Lucas Ecklund-Baker
Communications Specialist
1031 CORP.
Collegeville, Pennsylvania
(800) 828-1031 ext. 249
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Lucas Ecklund-Baker
Role: Communications Specialist
Location: Chicago, Illinois & Collegeville, Pennsylvania
April is National Volunteer Month. In honor of the month’s significance, we are highlighting our team’s volunteerism.
How do you volunteer in your community?
I serve as a host at the local homeless shelter for those living on the street and in a program helping homeless men get back on their feet.
Unhoused people in my community in Northwest Indiana face the challenges of safety, weather, poverty, and personal circumstances, but also lack the tools needed to pull themselves out of the cycle of homelessness. A community program, here, helps homeless men get stable healthcare, find work, establish housing, and gather important paperwork—many don’t even have the government identification needed to find work. The program has helped many in the community get their lives together to climb out of homelessness. The men sleep at host churches in town each night. I am an overnight representative at one of the churches. I make sure they have what they need and am present in case of emergencies. Sometimes, the men just want to talk. I also serve at the overnight shelter that welcomes anyone, which is critical in Northwest Indiana during winter months.
Hosting at the shelters takes only a few nights without sleep over the course of a season. It’s not a burden—and certainly pales in comparison to the difficulty in the lives of these folks. I see it as a commitment to my community and a way to support neighbors who need a hand to improve their condition.
1031 CORP. participates in the Federation of Exchange Accommodators, the national trade association of Qualified Intermediaries (QI). How does volunteerism play a role?
1031 CORP., as an organization, is a member of the FEA. The FEA provides news, training, certification, best practices for the industry, and advocacy for Section 1031. It’s a volunteer-led organization, with a small administrative staff. The association has volunteer leadership for their government affairs and advocacy and uses a law firm in Washington, D.C. for support. Volunteers are critical to the success of the organization and the preservation of Section 1031.
Several 1031 CORP. team members participate to make the FEA a strong resource for QIs and advocate for 1031 exchanges. Team members serve on the Board, Government Affairs, Communications, and Events committees, and we assist with marketing for the association. Our company also takes advantage of webinars, training sessions, and conference events to keep the Exchange Teams sharp. Every year, a few members go to the FEA’s advocacy day, where many QIs from across the country represent the industry on Capitol Hill in Washington, D.C. The purpose is to educate legislators and committees about the importance of Section 1031 to investors, real estate markets, communities, and the local and national economies.
Volunteering with the FEA is an important part of our work and helps our clients, our team, and our industry. It supports the industry and keeps 1031 CORP. on our game.
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Poll: What's the best benefit of a 1031 exchange? |
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Please select only one answer. Poll results will be reported next month.
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Leveraging real estate for investment
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Using a 1031 exchange for business purposes
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Facilitating efficient transfers for property conversions
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Exchanging properties for agricultural use
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Poll: Will the NAR settlement impact housing prices? |
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Your poll answers from the March issue of Exchanging Times®.
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Serving as a nationwide Qualified Intermediary for 1031 tax-deferred exchanges since 1991, 1031 CORP. strives to provide an exceptional exchange experience made easy for our clients and their advisors. We provide our clients with enhanced security of funds, knowledgeable exchange professionals and a commitment to keep the exchange process simple for our clients and their advisors. Our Exchange Team, which includes Certified Exchange Specialists®, has the experience and expertise to facilitate even the most complex exchange transactions, including reverse and improvement exchanges.
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