There’s an old saying, “If it ain’t broke, why fix it?” This adage is especially true when it comes to a well-functioning tax code, such as Section 1031, also known as “like kind” exchanges. Like kind exchanges are a tried-and-true part of our nation’s tax code which strengthens our economy and encourages reinvestment in Nevada’s businesses. Section 1031 works as a forceful investment tool for Nevada’s commercial real estate market, creating opportunity for economic growth.
As the owner of Pahrump Access Realty, I see firsthand how Section 1031 works to bolster the commercial real estate market. In fact, if it were repealed, it would harm both the commercial real estate market and consumers alike. Section 1031 helps keep commercial property taxes low, encourages allocation of resources to improve buildings and new construction, and stimulates overall real estate activity.
Critics state Section 1031 is an “unfair tax break,” but in truth, it is a powerful tax incentive. Taxpayers do not profit from like-kind exchanges, as the taxpayer must demonstrate continued ownership and like kind exchanges work as though the asset was never sold. Without this important incentive, many transactions would never happen because of the costly taxes assessed.
Without Section 1031, commercial property taxes would increase, property values would drop, and there would be less investment in building improvements and new construction. Consumers would also feel the effect through rising and unstable rental costs (needed to make eventual new construction possible) and fewer options for affordable housing. Keep the tax as it is now – and has been since 1921 - to encourage economic activity and provide a powerful tax incentive for Nevada businesses.