The Future of 1031 Exchanges in 2026: What Investors Need to Know [As of March 2026]

If you’ve heard rumors surrounding 1031 exchanges in 2026, you’re not alone. When federal tax reform hits the mainstream, which is often, investors and real estate agents keep a close watch on headlines that surround Section 1031 of the IRS tax code. Uncertainty can create hesitation, especially when timing a 1031 exchange.

So, will 1031 exchanges be eliminated? The reality is a bit more measured. Section 1031 has weathered multiple tax reform cycles over decades. While certain provisions have evolved, the core benefit of deferring capital gains taxes on like-kind investment properties remains untouched.

If you’re looking to make confident decisions in 2026 and beyond, understanding what has or hasn’t changed is key. In this guide, we’ll break it all down.

The Quick Take 

Here’s a brief snapshot of our current landscape:

• Section 1031 has not been eliminated.

• Investment real estate remains eligible for tax-deferred exchange treatment.

• The 21st Century ROAD to Housing Act, passed on March 12, 2026, seeks to ban large institutional investors from purchasing single-family homes, though proposed exemptions and ongoing revisions may significantly impact how the policy is implemented in practice.

• Reform discussions typically focus on caps or other limitations rather than a full repeal.

• No current federal legislation removes 1031 exchanges for real property.

• Proactive planning remains the smartest strategy in a changing tax environment.

Keep reading to learn more about why.

Are 1031 Exchanges Being Eliminated?

Let’s get the short answer out of the way early: No. 

As of February 2026, Section 1031 remains intact for real property held for investment or business use. Yes, discussions around tax reform do resurface frequently, but 1031 exchanges are typically part of broader conversations about federal revenue and capital gains policy. That visibility can understandably create concern among investors and real estate agents, though.

The core structure, which allows investors to defer capital gains taxes when exchanging like-kind real estate, is still in place under federal law. This begs the question:

What Actually Changed in 2018?

The most significant recent change came through the Trump administration’s Tax Cuts and Jobs Act (TCJA) of 2017, which took effect in 2018. The bill eliminated eligibility for personal property exchanges, which includes items like equipment, aircraft, and other machinery.

However:

• Investment real estate remains eligible.

• Commercial property qualifies.

• Multifamily and rental properties remain eligible.

• Land held for investment remains eligible.

• Certain long-term leaseholds may qualify.

In simple terms, the TCJA update narrowed the scope a bit, but it did not eliminate it for investors. 

What Causes the Confusion?

When 1031 exchange tax reform is mentioned, it’s natural for investors to feel worried. Most of today’s confusion surrounding reform centers on:

• 1031 is often mentioned during budget negotiations.

• 1031 exchange cap proposals occasionally surface in draft reform plans.

• Headlines can amplify proposals that never advance.

If it helps, remember that these tax deferrals have existed in one form or another for over 100 years. While provisions evolve, it has historically remained part of the tax code because of its role in facilitating property transactions and reinvestment.

What’s the Outlook for 2026?

As it stands, no proposed legislation directly alters Section 1031. However, emerging housing policies, particularly those targeting investor activity, could indirectly influence real estate markets, transaction volume, and exchange strategy. 

As part of the Trump administration’s goal to reduce housing prices across the country, the 21st Century ROAD to Housing Act, passed by the Senate on March 12, 2026, proposes sweeping reform to limit the ability of large institutional investors that own at least 350 properties from purchasing single-family homes.  

The bill also aims to make it easier to build manufactured homes, lessen regulations, and give incentives to localities to encourage home building. However, experts note that certain provisions, including ‘homeownership boost’ exemptions, may allow institutional investors to continue acquiring properties under modified conditions. This highlights a broader trend in real estate policy: proposed restrictions often evolve through exemptions, which can significantly alter their real-world impact.

It remains to be seen how this legislation could affect 1031 exchanges, but investors and real estate brokers will be watching closely as the legislation continues to develop in Washington, D.C.

Importantly, even proposed legislation can influence market behavior before becoming law. Following the announcement of the bill, publicly traded single-family rental companies saw immediate stock declines, signaling how policy direction alone can impact investor sentiment and capital flow.

Why Are 1031 Exchanges Frequently Targeted in Tax Reform?

If no current law changes affect the timing of a 1031 exchange, why do we keep seeing it in tax reform discussions? The answer has a lot less to do with ideology and more to do with how our federal government handles budgets.

When Congress evaluates large tax or spending packages, lawmakers often review provisions that affect federal revenue timing. Because 1031 exchanges allow investors to defer capital gains taxes, they naturally surface in those discussions. Here’s why:

1. Federal Deficit Pressures

The U.S. carries a lot of debt. How much? Over $38 trillion and growing. Because of this, lawmakers have to evaluate tax provisions that influence revenue collection. 

Section 1031 doesn’t eliminate taxes, but because deferred gains are not immediately taxed in the year of sale, budget models sometimes treat that deferral as delayed revenue. This forces policymakers to get creative when figuring out ways to increase short-term revenue.

2. Revenue Offsets, or “Pay-Fors”

To balance projected costs, large tax bills often require revenue offsets, sometimes referred to as “pay-fors”. Because 1031 exchanges can defer significant capital gains in high-value transactions, proposals occasionally suggest:

• Cap proposals for 1031 exchanges

• Limiting deferral to certain income thresholds

• Restricting eligibility in specific scenarios

Historically, most of these proposals have not advanced into enacted law. But their appearance in draft discussions can generate headlines and investor concern.

3. Capital Gains Policy Debates

Due to their nature, 1031 exchanges directly intersect with broader discussions around capital gains taxes. We’ve seen a lot of headlines surrounding this in the past year. In the Netherlands, for example, lawmakers discussed a 36% annual tax on unrealized gains of assets.

Conversations like this in the U.S. naturally involve the idea of new 1031 exchange laws. This isn’t to say 1031 exchanges will be eliminated. It does, however, speak to why the provision is frequently part of reform dialogue.

4. Political and Economic Cycles

Unsurprisingly, tax reform discussions shift in the same manner as political parties shift in Washington, D.C. These intensify during:

• Election cycles

• Major budget negotiations

• Periods of economic transition

• Large-scale tax overhauls

Section 1031 has been reviewed in multiple reform cycles over the decades. Yet through those cycles, it has consistently remained part of the Internal Revenue Code for real property.

What Has Changed With 1031 Exchanges in Recent Years?

Rumors around a 1031 exchange repeal will always circulate, but what has actually shifted in recent years?

The 2017 Tax Cuts and Jobs Act (TCJA)

Taking effect in 2018, the TCJA represents arguably the most significant shift to Section 1031 we’ve seen. Before this, 1031 exchanges applied to real property (real estate) and certain types of personal property (artwork, cattle, cars, airplanes, etc.) beyond homes or investment properties.

The TCJA narrowed eligibility by removing personal property from Section 1031 treatment. Since then:

• Only real property qualifies for 1031 exchange treatment.

• Investment real estate remains eligible.

• Business-use real estate remains eligible.

While this wasn’t an elimination of 1031 exchanges, it did create a narrowed structure for investors and agents to follow.

California’s FTB “Claw Back” Rule

If you don’t invest in California, this won’t apply to you. However, the “claw back” rule that took effect in 2014 is a nuance that causes a lot of confusion with those who have multi-state portfolios. Let’s break it down.

Under California Franchise Tax Board (FTB) rules:

• If a taxpayer completes a 1031 exchange by selling California real estate for replacement property located in another state.

• Then, later sells the replacement property in another state…

• California requires annual reporting, and there may be a potential recognition of previously deferred gain attributable to California-sourced property.

This is not a federal shift and does not eliminate 1031 exchanges anywhere in the U.S. Instead, it reflects state-level conformity and reporting rules.

The Bigger Picture for Investors

It’s normal for tax policy to evolve. 1031 exchange tax reform is also possible, but it’s not going away. There are no current appeals or pending eliminations set for 2026, so investors still have plenty of opportunity to defer their capital gains taxes.

However, we must consider what would happen if that ever changed.

What Would Happen if 1031 Exchanges Were Limited or Eliminated? 

While purely hypothetical, staying a step ahead of any future legislation can go a long way. Economists have studied this before. The theme is consistent: limiting 1031 exchanges would dramatically alter investor behavior.

1. The “Capital Lock-In” Effect

When selling triggers immediate tax recognition, investors often delay dispositions to avoid a large tax hit in the current year. That can reduce the number of properties brought to market and slow the normal reinvestment cycle. Studies on repeal scenarios commonly flag this as a primary consequence.

2. Reduced Transaction Activity and Visibility

Several macro studies connect repeal/limitation scenarios with lower transaction volume, which can reduce activity for investors AND brokers. This isn’t just about “more taxes” vs. “less taxes.” It’s about the speed at which capital moves through real estate markets.

3. Higher Cost of Capital and More Leverage Pressure

We must also examine the concept of user cost of capital and explore how removing deferral can change investment incentives. In plain terms: if it becomes more expensive to sell and reinvest, some investors either (a) hold longer than they otherwise would, or (b) lean more heavily on financing to complete repositioning. These are two major reasons why 1031 exchanges may never be eliminated in full.

4. Disproportionate Impact on Small- to Medium-Size Portfolios

Large institutions often have more tools to manage tax exposure. It’s an uncomfortable truth that individual investors and brokers always have to consider. With any new 1031 exchange rules come new challenges. Smaller investors may rely on 1031 exchanges to:

• consolidate multiple properties into one easier-to-manage asset

• diversify out of a single-market risk position

• move into properties that better match life stage and liquidity needs

If regulations dramatically shift, timing a 1031 exchange could become too difficult for many.

For investors, the key takeaway is not just whether 1031 exchanges change, but how broader real estate policies shape market conditions. Even without direct tax reform, shifts in investor regulation, housing supply, and capital flows can influence the timing and structure of an exchange.

Should Investors Act Now?

Analyzing the potential effects of major 1031 exchange rule shifts is not meant to cause panic. If you’re considering a sale in 2026, the biggest advantages you can give yourself are time and planning. This allows you to structure properly, evaluate like-kind replacement options, and avoid last-minute pressures.

Here is what “acting now” typically looks like:

• Start with the timing reality of exchanges instead of media headlines.

• Keep your options open through early planning.

• Find the right Qualified Intermediary and investment partner.

At First American Exchange Company, our positioning emphasizes security, segregation of funds, and experienced guidance. If you’re looking to start a 1031 exchange before any future tax reform, we’re here to help. Talk with our team to discuss the right timing of your desired 1031 exchange.

FAQs

Is 1031 going away in 2026?

No. 1031 exchanges will likely not be eliminated in 2026. While reform discussions periodically arise, real property exchanges remain permitted under current law.

Has Congress capped 1031 exchanges?

No federal cap has been enacted. Although proposals have surfaced in past reform discussions suggesting limits on annual deferral amounts, none have passed into law. Currently, eligible real estate exchanges may defer gains without a federal cap.

Can 1031 be eliminated retroactively?

Retroactive elimination would be highly unusual. Historically, major tax changes have not invalidated completed transactions. While Congress has authority to change tax law, retroactive repeal of Section 1031 would be rare and disruptive.

What happens if 1031 is repealed?

If Section 1031 were repealed, investors would generally recognize capital gains upon sale without the ability to defer through an exchange. This could increase immediate tax liability and potentially reduce transaction activity.