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NAR’s Policy Support for Commercial Real Estate

Sep 9, 2020

NAR’s Policy Support for Commercial Real Estate

Opportunity Zones; 1031 Like-Kind Exchanges; Infrastructure Reform

With the housing market having seemingly recovered to pre-COVID levels – even exceeding many economists’ expectations for 2020 – the circumstances surrounding commercial real estate in America are unfortunately very different right now.

The National Association of REALTORS is working to defend several policy proposals that are critical to commercial real estate and which we believe will help many of our commercial members endure the economic effects of this pandemic.

1031 Like-Kind Exchanges

As campaigning for the 2020 elections continues, several proposals have been revived to curb or even ax the 1031 like-kind exchange, which is a pillar of the commercial real estate industry.

A common narrative – and misconception – circulating is that 1031 exchanges are used only by the “super-wealthy.” But recent data shows that only 5 percent of exchanged properties are held by regular corporations. Section 1031 is used by all sizes and types of real estate owners, including individuals, partnerships, LLCs, and corporations. The vast majority are held by mom-and-pop investors – sole proprietors and pass-through businesses and S corporations. 

A recent survey of NAR members indicated that 70 percent of REALTORS have participated in a 1031 like-kind exchange in the past 4 years. NAR contends that the like-kind exchange provision – a basic tool that helps to prevent a “lockup” of the real estate market – is vital to a well-functioning real estate sector and a strong economy. Real estate owners use the provision to efficiently allocate capital to its most productive uses, keeping our economy on stable ground.

Additionally, like-kind exchange rules have even helped preserve significant acreage of environmentally sensitive land.

There is a mountain of data showing its economic benefits since Section 1031 of the Internal Revenue Code was enacted in 1921. And with tens of thousands of U.S. small businesses currently at risk of shuttering permanently, NAR knows Congress simply cannot take any action that could devastate an entire sector of our economy.

Qualified Opportunity Zones (“QOZ”) program

Next, NAR is focused on defending the QOZ program, which provides tax incentives for investing in underserved communities, which have been aptly named “Opportunity Zones.”

The OZ program attracts new capital by allowing those with unrealized capital gains to roll gains into an investment in an Opportunity Fund (a business operating in an Opportunity Zone). If the new investment is held for at least 5 years, capital gains taxes owed on the prior investment are reduced 10 percent. If the investment is held for at least 10 years, any capital gains become fully tax-free. Opportunity Zones are one of the only tax initiatives developed with considerable bipartisan support in recent memory.

While certainly not a cure-all for everything affecting lower-income communities, it would be unfortunate for politics to destroy this innovative program before it has a chance to get off the ground. 

NAR has supported legislation to require a comprehensive, data-driven analysis of this program. And while we know reforms must be considered, NAR continues to argue that the program – and the benefits it provides to struggling and low-income areas – are worth preserving.

Community Development/Transportation & Infrastructure Reform

As REALTORS, we recognize the importance of sound federal transportation infrastructure policy. In fact, our members identified the issue as their top policy priority in 2019.

Prudent investments in our transportation and infrastructure network become even more meaningful within our commercial real estate sector. Even modest improvements to infrastructure have shown to enhance property values in communities across the U.S. Increased investments in our highways, bridges, and public transportation systems help us improve safety, increase efficiency, and grow our economy.  

The federal Highway Bill expires on Sept. 30 and is widely expected to be the vehicle for a larger infrastructure package. The House has already passed its related appropriations bill.

NAR will continue pushing Congress for a long-term, fiscally sustainable, and meaningful long-term federal infrastructure reform and investment bill, recognizing that investments in our infrastructure spur growth, create jobs, and save lives.

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