When I was 8 years old, my family migrated from Malawi, Africa, to pursue the American Dream. I grew up doing everything from housekeeping to working the front desk at our small 15-room motel in Richmond, Va. After graduating from college, I continued the family hotel business.
Today, I am the president of Fairbrook Hotels, which owns and operates 11 properties and provides jobs to 220 employees. My family could not have accomplished this without 1031 like-kind exchanges, which allowed us to grow our business by reinvesting the profits from the sales of smaller properties and purchasing larger ones.
Section 1031 is a provision of the Internal Revenue Code that allows a business or the owners of investment property to defer federal taxes on some exchanges of real estate. According to Investopedia, the provision is used by investors who are selling one property and reinvesting the proceeds in one or more other properties. Qualifying Section 1031 exchanges are called 1031 exchanges, like-kind exchanges or Starker exchanges.
1031 like-kind exchanges create buying opportunities for individuals to purchase their first property, which gives them the same on-ramp to success that those before them used.
Related: Taking hotels from bearish to bullish in just 12 months
My story is similar to many of the nearly 20,000 members of AAHOA. The hotel industry is a close-knit community, and I am continually impressed by the mentorship provided by more established hoteliers to those just starting out.
While almost all businesses suffered monetary setbacks during the COVID-19 crisis, hotel owners were especially hard-hit. Many properties were shut down for more than a year. The losses incurred will not be recaptured. However, like other small business owners, hoteliers are resilient and will recover from the pandemic. They will continue to grow and reinvest in local communities, hire additional employees and will build back better. Therefore, at this time, any restrictions to the 1031 like-kind exchanges would be devastating. I urge lawmakers not to alter a critical program that has enabled so many people to achieve the American Dream.
Vinay Patel is the vice chairman of AAHOA and president of Fairbrook Hotels.