The Senate is considering a proposition that will both extend a popular tax credit for first-time home buyers past the previous Nov. 30 deadline and expand it to include certain current homeowners. This development has implications which directly affect the market for 1031 like-kind exchanges, as it will propel home purchases, allowing many investors to exchange their rental properties in a 1031 exchange.
So far, ES Group has already facilitated three of these exchanges this week. The reasons for exchange have been somewhat varied. In two cases the owner simply exchanged their previous residential rental property for another, often times with a more desirable location, such as a rental property closer to a daughters college or in a potential ideal retirement community. In the other case, the owner was simply tired of running an active investment and decided to enter into a tenant-in-common syndicated commercial real estate investment (TIC). Either way, the tax credit is having an affect on those interested in utilizing the 1031 exchange.
With the tax credits extension, it seems only logical that there will continue to be an upswing of 1031's in this area. Especially since residential values have been faring better recently, recovering from their precipitous decline. The economy, though posting a positive GDP in the latest quarter, remains in an economic quagmire with unemployment still high and showing little signs of lessening in the near future. Thus, selling now to people incentivized by tax credits could be less risky than waiting for opportunities during a "jobless recovery". These government incentives will not continue forever and investors need to constantly keep an eye on where they would like to end up.
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