Like-Kind Exchanges

A like-kind exchange or “1031 exchange” refers to section 1031 of the U.S. Internal Revenue Code. This section provides that capital gains taxes can be deferred in cases of exchanges of property held for productive use in a trade or business or for investment, provided the properties exchanged are comparable (“of like kind”). When the taxpayer ultimately sells the asset, the tax is paid. In commercial real estate, the provision encourages transactions because it enables investors to overcome the “lock-in” effect of tax rules, allowing them to remain invested in real estate while shifting resources to more productive properties or changing geographic locations.


Since 1924, Congress has recognized that gain should not be taxed when property held for trade or business use or for investment is exchanged for "like-kind" property (property that is similar in value). Section 1031 of the Internal Revenue Code embodies this principle, recognizing that taxpayers exchanging like-kind property have not altered either the type or level of their investment and that the economic situation of the taxpayer has not changed. The ability to defer gain on like-kind exchanges facilitates well-functioning, efficient and dynamic real estate markets, and like-kind exchanges often provide the necessary liquidity to make deals work. They have become an essential component of modern real estate markets.

In commercial real estate, the ability to defer taxes is particularly important because assets are long-lived and past depreciation deductions greatly increase the tax burden of transferring ownership, creating a “lock-in” effect on real estate. In other words, without the flexibility provided by Section 1031, owners of properties needing capital investment face disincentives to selling or transferring that property because of the tax implications. As a consequence, without Section 1031 a substantial reduction in commercial real estate activity would result.

Some have advocated eliminating or limiting the availability of tax deferral for like-kind property exchanges. In the 113th Congress, both Senate and House tax-writing committee chairmen put forth tax reform proposals that would have eliminated or severely restricted Section 1031. The Obama Administration also proposed limiting the availability of Section 1031. In June 2015, NAIOP and a number of other real estate industry associations released an economic study analyzing the use of Section 1031 in commercial real estate and its economic impact, providing much-needed information for policymakers. The Tax Cuts and Jobs Act of 2017 ended like-kind exchanges of non-real estate properties, such as machinery or works of art. As part of his American Families Plan, President Biden said he would “end the special real estate tax break that allows real estate investors to defer taxation when they exchange property – for gains greater than $500,000”.


President Biden’s proposed revisions to Section 1031 were not included in the budget reconciliation measure that ultimately was passed by the House of Representatives and was not included in the Inflation Reduction Act, the budget reconciliation version that was passed by the Senate in August 2022.


NAIOP opposes eliminating or altering tax provisions allowing for the use of like-kind property exchanges. Eliminating or restricting the use of like-kind exchanges would threaten the liquidity of real estate markets, and would severely curtail transactions and the efficiency of the market. Eliminating tax deferral on real estate exchanges would also create disincentives for owners to transfer properties with past depreciation deductions, and reduce new investment in distressed properties.

Talking Points

  • Eliminating or curtailing the availability of tax deferral for like-kind property exchanges would severely undermine modern commercial real estate markets, threatening their liquidity and efficiency and resulting in reduced investment and transactions.
  • Current like-kind exchange rules should be maintained because they avoid the “lock-in” effect that otherwise would result from owners unwilling to sell properties with substantial past depreciation.
  • Altering current like-kind exchange policies would remove the incentive to own and repair distressed properties, and makes it more difficult for real estate to be acquired by owners who have the ability and intent to invest and upgrade the property.
  • By facilitating needed investment in real estate improvements, like-kind exchanges promote job growth and community development.


Section 1031 Like-Kind Exchanges ("LKEs") Coalition Letter, April 10, 2024

Congressional 1031 Coalition Letter, Sept. 7, 2021 

The Tax and Economic Impacts of Section 1031 Like-Kind Exchanges in Real Estate 

EY Study: Economic contribution of the like-kind exchange rules to the US economy in 2021 

Congress, Make Tax Reform Take the Long View

Federation of Exchange Accommodators


Aquiles Suarez
Senior Vice President for Government Affairs
703-904-7100, ext. 115