New research by Ernst & Young illustrates the powerful impact Section 1031 like-kind exchanges have on the U.S. economy.
According to the May 2022 EY study, Section 1031 like-kind exchanges:
- Promote job growth and labor income in the United States. Overall, economic activity generated by §1031 exchanges in 2021 supported
► 976,000 jobs
► $48.6 billion of labor income.
- Contribute to US GDP. Like-kind exchanges generated $97.4 billion in value added in the United States in 2021.
- Contribute to federal, state, and local tax revenue. Taxpayers engaged in like-kind exchanges, along with suppliers and related consumer spending, generated $13.1 billion in federal, state, and local taxes during 2021. Of that, $8.2 billion is federal, and $4.9 billion is generated at the state and local level. Moreover, an average of $6 billion per year of additional income taxes were paid due to foregone depreciation (reduced deductions) on the replacement property acquired in the exchange.
- Reduce the cost of capital and increase investment in the US economy. Like-kind exchanges supported $7.5 billion of investment in 2021. This results in faster and more efficient redeployment of capital for economic rather than tax reasons. Greater investment results in more jobs, labor income and value added, not only at taxpayer businesses engaged in like-kind exchanges, but also at suppliers to those taxpayers, as well as businesses that rely upon consumer spending, such as retail stores, restaurants and entertainment.
- Reduce impediments to transfers, i.e. the “lock-in” effect. Section 1031 encourages businesses of all sizes to relocate into properties that better meet current and future needs, promoting the best use of property and more efficient business growth.
To learn more, read the full report: “Economic contribution of the like kind exchange rules to the US economy in 2021 – An update,” May 2022
Summary: Economic contribution of 1031 to US economy, May 2022
Slide Deck: Economic contribution of like-kind exchange rules to the US economy in 2021 – An update – Slide Deck – May, 2022