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New Study Demonstrates Value of Like-Kind Exchanges

Like-Kind Exchanges

As Congress continues to debate tax reform, NAA/NMHC have strongly argued for lawmakers to retain Like-Kind Exchanges in their current form as they incentivize investment and improve market values.

Reinforcing that message, a new study has found that the value of a like-kind exchange, as a percentage of the price of the replacement property, can be up to nearly 8 percent of property value. What’s more, in higher-taxed states, the value of a like-kind exchange can be over 17 percent. The research, conducted by Professors David Barker, David Ling and Milena Petrova demonstrates the key role that like-kind exchanges play in preserving property values.

Many proponents of repealing like-kind exchanges believe the Treasury would gain substantial revenue that could be used to pay for lower statutory tax rates in a tax reform package. The authors find, however, that “repeal (of like-kind exchanges) appears likely to generate less than $500 million per year to the Treasury.”

The authors conclude that “Overall, elimination of tax deferred exchanges for commercial real estate is likely to reduce market values, especially in high tax states, and cause disruptions in many local real estate markets, including reduced levels of construction and financial losses. The revenue gains to the Treasury, however, would be minor.”

The new study builds on pathbreaking work completed by Ling and Petrova in 2015 that included the following key findings:

  • 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) commercial properties acquired by a like-kind exchange result in a taxable sale in the very next transaction.


NAA/NMHC continue to encourage Members of Congress to recognize the value that like-kind exchanges play in multifamily real estate investment. As the debate over tax reform moves forward, we ask Congress to retain like-kind exchanges in their current form.