Building  Owners  and  Managers  Association  International

Building Owners and Managers Association International

Section 1031 “Like-Kind” Exchanges

BOMA Position

Section 1031 has been an effective economic development tool, stimulating job creation and investment, and should be retained in its current form.  The policy does not free a taxpayer from any obligation to pay taxes but merely aligns the payment with when the property is sold.


Section 1031 of the Internal Revenue Code provides: “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.” 

Generally speaking, a Section 1031 exchange (also called a “like-kind” exchange) is a swap of one business or investment asset for another.  In a real estate transaction, this means taking the proceeds from one piece of property and rolling them into another, of equal or greater value, without cashing out and being taxed as a capital gain. That allows the investment to continue to grow tax deferred. There’s no limit on how many times or how frequently a business can do a 1031. The rules for what qualifies for a like-kind exchange are fairly broad. It’s possible to exchange an apartment building for raw land, or an office building for a strip mall. Although there may be a profit on each swap, taxes are avoided until the investment is sold for cash.

During the 113th Congress, former Chairman of the Senate Finance Committee, Max Baucus (D – Mont.) and retiring Ways and Means Chairman, Dave Camp (R – Mich.) introduced language to reform the tax code.  In an effort to raise revenue in general or off-set lower tax rates overall, each proposal included a repeal of Section 1031, a section of the Code that’s been around since its inception in the 1920’s. While it is highly unlikely that Congress will consider tax reform in 2014, the suggested change to eliminate Section 1031 could serve as a basis for future proposals that may have more political viability since some may view this tax deferral strategy as a loophole. ​


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