1031 Exchange Rules in 2026: What Changed and What Stayed the Same

The Reassuring News: The Fundamentals Haven't Changed

If you've done a 1031 exchange before, or if you're planning one for the first time, the core rules remain predictable in 2026. The Tax Cuts and Jobs Act of 2017 permanently limited 1031 exchanges to real property (no more personal property exchanges), and those rules are still the law. The 45-day identification period, the 180-day closing deadline, the Qualified Intermediary requirement, the like-kind real property rule: all of it is exactly the same as it was in 2025.

This stability is actually valuable. You can plan with confidence that the exchange structure you use today will work the same way it did last year and will work the same way next year.

What Is New in 2026: Tax Brackets and Economic Context

The most important "change" for 1031 exchanges in 2026 is actually not a rule change at all: it's the inflation-adjusted federal tax brackets. Every year, the IRS adjusts tax brackets for inflation. In 2026, those adjustments affect how much tax you'd owe if you don't do an exchange.

Here's why it matters:

If you sell property and don't exchange, you owe capital gains tax. For long-term gains (which most real estate holds are), the federal tax rate is either 0%, 15%, or 20%, depending on your income. With 2026 inflation adjustments, the income thresholds for those brackets are higher.

For example, a single filer who hits the top 20% bracket in 2026 does so at a higher income than in 2025. If your income puts you in that 20% bracket, you're also subject to the 3.8% Net Investment Income Tax (NIIT). Combined with state taxes, your marginal rate on capital gains could easily exceed 25%.

That makes your 1031 deferral more valuable. If you're on the fence about whether to exchange, the higher tax brackets for 2026 tip the scales further in favor of deferral.

Use calculate your tax savings to see how the 2026 brackets affect your specific situation.

IRS Updates and Form Changes to Be Aware Of

The IRS has been steadily clarifying 1031 rules, particularly around reverse exchanges and improvement exchanges. While the substantive rules haven't changed, the agency has issued guidance that helps practitioners understand edge cases.

Reverse exchanges: The IRS's position on reverse exchanges (where you acquire the replacement property before you sell the relinquished property using an Exchange Accommodation Titleholder) remains firm. You must acquire the replacement within 180 days, and the EAT must not be you or your agent. The costs are higher than a straight exchange, but the structure is sound and widely used.

Improvement exchanges: These are exchanges where you buy property below your sales price and use exchange proceeds to fund capital improvements before Day 180. The IRS has acknowledged these are permissible, but tracking and documentation must be airtight. Make sure your QI and contractor are coordinated.

Qualified Intermediary standards: FinCEN's AML rule (covered in our article on the FinCEN "1031" rule confusion) doesn't change QI requirements, but it does mean settlement agents need to coordinate more carefully on timing and disclosure.

Check with your QI to confirm they've updated their procedures for any 2026 changes. Most major QI firms proactively communicate updates, but it's worth asking.

What's Staying the Same (And Why That Matters)

Because the rules are stable, here's what you can rely on for planning:

Real property only. You cannot exchange business equipment, vehicles, intellectual property, or intangibles using 1031. This rule is permanent under current law.

45 days to identify. You must identify replacement property within 45 days of closing on the sale. No exceptions. Mark it on your calendar.

180 days to close. You have 180 days from the sale closing to close on all identified replacement properties. This is a hard deadline.

Like-kind real property. Both the relinquished and replacement property must be real property. A commercial building can be exchanged for residential, or vice versa. Real property is real property, with only a few exceptions (foreign real property, inventory, securities in REIT or partnerships).

Same taxpayer rule. The entity that sells must be the same entity that buys. If an LLC sells, the LLC must buy. If you're considering restructuring your entity, do it well in advance.

Qualified Intermediary requirement. You cannot touch the sale proceeds. They must go directly to a qualified intermediary who holds them and pays the replacement property seller. This is non-negotiable.

Legislative Proposals and Risk Assessment

Congress has proposed various limitations to 1031 exchanges for decades. The most recent serious proposal (from the Biden administration in 2021) would have capped the annual 1031 deferral at $500,000 per taxpayer per year. That proposal did not pass and has not been reintroduced in the current Congress.

The current political environment doesn't show strong momentum for 1031 reform. The real estate industry, agriculture, and related sectors have successfully advocated for the 1031 since 1921. While proposals may continue to appear in future budget proposals, elimination or dramatic restriction is not imminent.

Should you change your plans because of reform risk? No. If an exchange makes economic sense today, execute it. Don't sit on deals hoping for favorable tax law. If the law changes, the change is prospective (it would apply to future exchanges, not retroactively). Plan based on current law, execute solid deals, and keep good records.

For more context on reform risk, see is the 1031 exchange going away.

State-Level Developments

While federal 1031 rules remain unchanged, a few states have made moves in recent years. California, for example, has proposed (but not yet passed) modifications to 1031 treatment. New York has discussed similar proposals. These remain proposals, not law, but they're worth discussing with a state tax professional if you own property in these states.

For most investors in most states, federal 1031 rules dominate your planning. But if you own property in California, New York, or other states with recent 1031 discussions, ask your state tax advisor whether there are any state-specific changes for 2026.

What's Worth Watching for the Rest of 2026

DST regulations: Delaware Statutory Trusts continue to be a popular replacement property structure. The IRS is maintaining standard compliance programs for exchange transactions. If you're considering a DST, ensure your QI and the DST sponsor are aligned on documentation and fees.

Qualified Opportunity Zone changes: The OZ program is sunsetting on December 31, 2026, for certain original benefits (the 10% basis step-up for 5-year holds). This is separate from 1031 exchanges, but it affects the competitive landscape for alternative investment strategies. See opportunity zones 2026 update for details.

IRS enforcement trends: The IRS continues to examine 1031 exchanges where the QI relationship appears too informal or where documentation is missing. Using a reputable, well-capitalized QI firm and maintaining meticulous records remains your best protection.

Real property definitions: The IRS periodically clarifies what qualifies as real property (versus personal property or fixtures). If you're selling property with unique components (solar panels on a roof, say, or a manufactured building), confirm with your QI that it qualifies as real property under current guidance.

The Bottom Line

2026 brings no major surprises for 1031 exchanges. The core rules are stable, the economy creates a favorable tax environment for deferral (with higher capital gains brackets), and legislative risk remains low. If you're planning an exchange, the time is as good as any in recent history.

Use calculate your tax savings to understand your deferral value. Take a quiz to find your best path (straight exchange, reverse, DST, or something else). And talk to an advisor to confirm your specific plan fits your timeline and property.

For comprehensive details on the rules themselves, see 1031 exchange rules and like-kind real property.

We update this article annually, so check back next year for 2027 updates.