The DJIA had a high of 381. The average price of a house was roughly ten thousand dollars. Gas cost $.22 a gallon. This was 1954 – the year the IRS implemented Section 1031 which provided a framework for the deferral of capital gains taxes. Fast forward 65 years and Section 1031 is now one of the greatest drivers of triple net lease (NNN) real estate transactions in the country.
Once considered an anomaly in the commercial real estate, today’s industry practitioners have argued that – in aggressively priced triple net lease investment markets – 1031 transactions represent fifty percent (50%) of all triple net lease transactions.
There’s a good reason for that number. Those who prefer to defer their capital gains, and have not completely depreciated their relinquished property, sometimes prefer other depreciable assets and/or assets that have the probability of accelerated depreciation – shorter depreciation schedules than commercial real estate often offers.
Gas stations with convenience stores, such as these in Arizona, are prime examples of NNN assets that may have depreciation schedules which could be accretive to an investor’s overall investment plan.
There are many factors to consider when purchasing NNN assets using the 1031 tax code. Ultimately, most Americans prefer to use the code to put their working capital back into the US economy versus paying the capital gains taxes.