|
The following article was published by the Ohio Land Title Association. Authors are James R. Havens, Esq. and Wes Gilliland, Esq., of Havens Limited and Cardinal Title.
In April 2021, the “American Rescue Plan” was announced. It proposed to “end the special real estate tax break—that allows real estate investors to defer taxation when they exchange property [via a 1031 Exchange]—for gains greater than $500,000.” https://www.whitehouse.gov/briefing-room/statements-releases/2021/04/28/fact-sheet-the-american-families-plan/
In response, the Ohio Land Title Association (OLTA), in concert with the American Land Title Association (ALTA), spearheaded efforts to oppose the $500,000 cap. These efforts included publishing opinion pieces in newspapers throughout the United States, including a September 3, 2021, article in the Akron Beacon Journal. https://www.beaconjournal.com/story/opinion/columns/guest/2021/09/03/proposed-change-tax-code-risks-ohio-farmers-financial-security/5684954001/
The article focused on the proposed cap’s detrimental impacts on Ohio farmers: “[1031 Exchanges] are especially useful for farmers looking to escape the hardships of farming in crowded urban settings, relocate, or improve their operations without an immediate debilitating capital gain tax consequence.”
The article also touched on how 1031 exchanges benefit the broader economy, including a study by Ernst & Young that projected like-kind exchanges to support 568,000 jobs that add $55.3 billion of value to the U.S. gross domestic product in 2021.
On January 21, 2022, just months after the article was published, Intel announced that it was acquiring thousands of acres of farmland in western Licking County and making the largest private investment in Ohio History. As anticipated by the article, 1031 Exchanges played a very real and direct role in enabling the Intel Development.
Before discussing the role of 1031 Exchanges, note the magnitude of the Intel Development:
- The initial project phase is to construct 2 two FABS on 1,000 acres at a cost of $20 billion.
- Ultimately 8 FABS are anticipated. Collectively, the total investment for the Intel site alone is anticipated to be $100 billion.
- Once complete, the development will be the largest, most sophisticated, chip manufacturing facility in the world.
- The initial project phase will see 3,000 Intel jobs created, along with 39,000 non-Intel jobs.
- Eventually, 6,000 Intel jobs will be created, along with 78,000 non-Intel jobs.
- The average salary for the Intel jobs is $130,000.
- There are already 135 tier one companies in the planning or construction phase right now that will support this facility.
- The development is anticipated to exacerbate the housing shortage in central Ohio.
- There are expected to be 100,000 new houses in the next ten years and 272,000 new houses in the next 25 years.
- Another perspective on the scale- In the past 40 years, Honda’s investment in the region has been just over 14 billion. This project is 20 billion immidiately.
- There are 23 townships involved in the project area.
Immediately following the announcement, 3,000 acres of Western Licking County farmland was annexed to New Albany. Since the announcement through the present, thousands of additional, adjacent farmland acres have been acquired for development.
Our law firm and affiliated title company have been involved in the purchase and sale of over 1,500 acres of farmland directly related to the Intel development. This includes representing five farming families that have sold land that is part of the Intel site or land in the immediate vicinity to suppliers, partners, and other related users.
It would be an understatement to say 1031 Exchanges played a critical role in the acquisition and development of Intel and adjacent land.
To ensure the Intel land could be acquired at a viable price, most of it was put under contract prior to the announcement of the development.
Many of the farmers were not inclined to sell, even at an above market sale price. Many of the farmers had owned the land for generations, meaning it had little to no tax basis and nearly the entire sale price would be subject to capital gains taxes absent a 1031 Exchange. Moreover, the farmland did not just represent appreciated real estate to the farmers; it represented an income producing, profitable business and a lifestyle. They had improved the land with millions of dollars of farming infrastructure (e.g., feed mills, grain silos, offices, outbuildings). Their operations and workforce were all based locally. Relocating and recreating operations and infrastructure would be a costly and exceptionally complex process.
The farmers’ ability to defer capital gains via a 1031 Exchange and reinvest all their sale proceeds in replacement farmland was crucial to bridging these competing interests.
The positive impact of these Intel related 1031 Exchanges ripples far beyond those farmers and others directly involved in the transactions. The broader title industry is a prime example. With a 1031 Exchange option, farmers and other landowners selling Intel related land are incentivized to acquire replacement land and continue operations instead of ceasing operations and paying capital gains taxes. The initial sale of Intel land triggers a series of subsequent sales and potential exchanges insured and facilitated by title agencies.
These subsequent transfers reach far beyond the Eastern Columbus Metro Area. Due to increasing urbanization, these replacement properties are found throughout the state. Our clients alone have looked at replacement properties in Delaware, Morrow, Richland, Knox, Fayette, Ross, and Muskingum Counties.
Fortunately, the proposed cap on 1031 Exchanges was never enacted into law. But there will likely be opposition to 1031 Exchanges at some point in the future. Please continue your support and advocacy for 1031 Exchange tax policy.
| 
