Federal Update: NAA/NMHC Study Shows that Like-Kind Exchanges Support Lower Rents
July 14, 2015
The National Multifamily Housing Council (NMHC) / National Apartment Association (NAA) released groundbreaking research on July 9 highlighting the critical role like-kind exchanges play in helping the multifamily industry provide housing to America’s workforce. Congress is combing the entire tax code as it seeks revenue to overhaul the nation’s tax laws, and there is a significant threat that the ability to conduct like-kind exchanges could be eliminated or curtailed. Like-kind exchange rules help the industry efficiently allocate multifamily capital and ensure that the industry can meet the increasing demand for housing. Key findings include:
- Assuming a typical nine-year holding period, apartment rents would have to increase by 11.8 percent to offset the taxation of capital gains and depreciation recapture income at rates of 23.8 percent and 25 percent, respectively.
- Governments collect 19 percent more taxes on commercial properties sold following a like-kind exchange than by an ordinary sale.
- Nearly nine in 10 (88 percent) of commercial properties acquired by a like-kind exchange result in a taxable sale in the very next transaction.