1031 Like Kind Exchange Tax Reform Updates
Current Status of IRC Section 1031
On July 4, 2025, President Donald J. Trump signed the “One Big Beautiful Bill” into law — a broad tax package aimed at stimulating investment. For real estate investors, the biggest win is what the bill didn’t change: Section 1031 Like-Kind Exchanges remain fully intact. Investors can continue deferring capital gains taxes by reinvesting in qualifying real estate — preserving a key tool for building wealth, improving communities, and supporting economic growth.
The Tax Cut and Jobs Act (TCJA) which took effect on January 1, 2018 eliminated personal property assets, including tangible, intangible and living (e.g. breeding livestock, race horses) from IRC Section 1031 like-kind exchange treatment. Section 1031 now applies exclusively to real estate assets, and has been retitled, “Exchange of real property held for productive use or investment.”
Threats to IRC Section 1031
IPX1031, in conjunction with our trade association, the Federation of Exchange Accommodators (FEA), have built a strong defense with the 1031 real estate coalition, updated economic studies, hosted multiple congressional fundraisers, and attended numerous meetings with congressional staff to educate members of Congress. We will continue to fight for Section 1031.
Read 1031 Talking Points here.
Continuing Threats to IRC Section 1031
Continuing risks to Section 1031 come from dynamic changes in Members of Congress and in the balance of power. While support for Section 1031 is bipartisan, so are the threats. The Tax Cut and Jobs Act (TCJA) was not revenue neutral and increased the deficit by almost $1.5 trillion over the 10-year budget window. The COVID-19 pandemic-related stimulus packages have further increased the deficit by trillions more. The ongoing need for revenue to fund existing government expenses as well as new legislative initiatives stimulates the search on both sides of the aisle for “pay-fors” to offset these costs.
Elimination of loopholes. Prior presidential administrations have called for elimination of certain tax preferences for real estate and alleged “loopholes,” which are reported to include capping the gain that can be deferred by Section 1031 like-kind exchanges. We have educated many in Congress, both Democrats and Republicans, that Section 1031 is not a loophole or an abusive tax-avoidance strategy. Instead, 1031 tax deferred exchanges are a powerful stimulant to the US economy that creates jobs and generates billions of dollars in federal state and local taxes each year. However, every election cycle results in a change of representatives and senators due to retirements and lost elections. As a result, the need for education and advocacy is ongoing.
Immediate Expensing. The Trump Administration proposed immediate expensing (the ability to write off 100% of the full cost in the year of acquisition) for buildings as part of the TCJA. Although the TCJA ultimately limited immediate expensing to personal property assets, the proposal, which would kill Section 1031, is still very much alive. The real estate industry (including Qualified Intermediaries) opposes immediate expensing of real property improvements on the basis that it would disrupt real estate markets and would increase speculative building and transactional activity intended to serve investor tax strategies, not occupant needs. Conversely, Section 1031 provides the same tax-deferral, but in a non-disruptive manner that won’t lead to a bubble and burst.
IPX1031 SAVE1031 Tax Reform Updates
Top Reasons to Preserve Section 1031
- Like-kind exchanges will accelerate our economic recovery from the pandemic by preventing real properties from languishing, underutilized and underinvested.
- Rules for like-kind exchanges are narrowly tailored and well-designed.
- Like-kind exchanges help small and minority-owned businesses expand and grow.
- Like-kind exchanges are an engine of job creation.
- Farmers, ranchers, and forest owners heavily rely on like-kind exchanges.
- Like-kind exchanges promote land conservation and environmental protection.
- Increasing the supply of affordable rental housing requires like-kind exchanges.
- States and localities depend on like-kind exchanges for tax revenue.
- For many Americans, like-kind exchanges are a principal tool for retirement savings.
- Like-kind exchanges reduce the cost of capital and make the economy more efficient.
- Additional federal taxes are collected in the years following a like-kind exchange.
- Like-kind exchanges help stabilize property values and real estate markets during an economic crisis.
1031 Exchange Impact Studies
Two studies that show the impact 1031 Exchanges have from both a macro (Ernst & Young) updated in 2022 and micro (Ling Petrova) level on the US economy released in 2021. Further resources and white papers can be found here.
STUDY – Ernst & Young Macroeconomic Impact Study: Economic Contribution of the Like-Kind Exchange Rules to the US Economy in 2021 – Updated May 2022
read summary here
read full study here
EY Infographic on Economic Contribution of LKE
STUDY – Ling Petrova Microeconomic Impact Study: The Economic Impact of Repealing or Limiting Section 1031 Like-Kind Exchanges in Real Estate
read summary here
read full study here
Read 1031Sustaining American Businesses (updated for 2022) here.
Read White Papers, Infographics and Talking Points here.
Will The 1031 Exchange Be Eliminated?
Time will tell if the 1031 is included as a pay for in upcoming legislation. Is there anything you can do right now to help? Yes! Click on the button below to stay informed of any updates.
Impact of the Tax Cut and Jobs Act on Sec. 1031
The major change to Section 1031 is the complete repeal of personal property exchanges. The Code section now refers exclusively to real estate assets, and has been retitled, “Exchange of real property held for productive use or investment.”
Real estate exchanges are subject to the same rules and regulations as under previous law. The 45-day identification and 180 day exchange periods remain unchanged, as does the role of the Qualified Intermediary. All real estate in the United States, improved or unimproved, also remains like-kind to all other domestic real estate. Foreign real estate continues to be not like-kind to real estate in the U.S.
Personal property assets that can no longer be exchanged include intangibles, such as broadband spectrums, fast-food restaurant franchise licenses and patents; aircraft, vehicles, machinery and equipment, railcars, boats, livestock, artwork and collectibles.
Many thanks go out to all who tirelessly helped throughout this process of advocating for preservation of Section 1031 through meetings, calls, letters and more. Without all our voices informing Congress of the broad benefits of Section 1031, this important tool could have been eliminated in its entirety. Everyone helped and every bit of help mattered. Congratulations to us all!
We are especially grateful to all the Members of Congress that listen, understand, and continue to support the retention of Section 1031.
Why 1031 Exchange?
When investors or businesses structure their real estate sale and replacement purchases as §1031 Like-Kind Exchanges, they c defer payment of capital gains and recapture taxes. The like-kind exchange is a powerful tool that encourages people and entities to re-invest their profits into more productive property that is better suited for current and future needs, stimulating business and economic growth, and improving communities. (See What is a 1031 Exchange infographic)
In some U.S. markets, real estate brokers state that §1031 exchanges touch at least 40% of the real estate investment transactions. Eliminating the option of structuring transactions as like-kind exchanges would not only cause a sharp drop in real estate transactions, but the additional business and services generated from the transactional activity related to §1031 exchanges would fall as well.
In 2015, Ernst & Young, LLP released a macro-economic study (updated in May 2022) on the impact 1031 exchanges have on the US economy. It found that 1031 exchanges support hundreds of thousands of jobs, adding billions of dollars to the US Gross Domestic Products (GDP), and generating billions of dollars in tax revenue annually for the federal, state, and local governments. Similar microeconomic impact studies, focused on commercial real estate, by Professors David Ling and Milena Petrova, have further confirmed that if Section 1031 was limited or eliminated, real estate transactional activity would decrease, the cost of capital would increase, and the US GDP would contract. (Repeal of 1031 Exchange infographic).
1031 Tax Reform Issues
IF Tax Reform Repeals 1031
Will a repeal of section 1031 accomplish the goals of tax reform set by Congress? NO!
- Repeal of §1031 will not accomplish the goals of tax reform
- Repeal of section 1031 will not increase fairness
- Repeal of section 1031 will tax cash flow, not wealth
- Repeal of section 1031 will not raise significant revenue
- Repeal of section 1031 will cause a decline in real estate values, a drop in manufacturing, and economic stagnation
- Section 1031 encourages reinvestment over profit taking, and it provides a strong incentive to keep that investment at home, in the United States.
Can retention of section 1031 laws help achieve goals set by Congress? YES!
The tax deferral benefit provided by section 1031 is a valuable tool for meeting all of these goals. It provides a powerful engine to the US economy. Like-kind exchanges promote transactional activity that results in jobs and taxable income that, in turn, fuels other businesses, including small and mid-sized businesses. And since foreign real estate and assets used predominantly outside of the United States cannot be exchanged for domestic real estate and assets such as machinery and equipment, the section 1031 deferral benefit directly stimulates reinvestment in US communities and businesses, promoting job growth within our own borders.
1 “The Tax Reform Act of 2014, Fixing Our Broken Tax Code So That It Works For American Families and Job Creators,” House Ways and Means Committee, p.11.
1 Ibid., p.9
1 Ibid., p.10
Is section 1031 a tax loophole? NO!
Is section 1031 an “abusive tax avoidance scheme?” NO!
What are the risks of repealing section 1031?
- Repeal of section 1031 will cause a decline in real estate values
- Elimination of section 1031 would result in a substantial increase in depreciation deductions and reduced income tax revenue.
- Elimination of section 1031 would have a chilling effect on real estate, manufacturing and other business transactions.
- Fewer transactions also translate into fewer jobs not only in the 1031 Exchange industry, but also in the real estate, construction, title insurance, mortgage and other related industries, equipment lease financing, vehicle and heavy equipment rental and manufacturing, after-market alteration, customization and installation industries.
How would repeal of 1031 affect the cash flow of a business?
Without the current treatment under section 1031, cash-strapped owners of business-use and investment assets could be forced to downsize their businesses, farms, ranches, real estate holdings, etc. if they don’t have sufficient additional cash flow to acquire replacement assets and pay tax on the gain or depreciation recapture of the old asset.
Will longer depreciation schedules introduced by proposed depreciation pools unfairly impact taxpayers that are taxed at individual rates?
1031 Supporters
Section 1031 is a vital, cost effective and revenue neutral stimulant to the US economy and US job creation. National, Regional and State Business and Industry Associations, representing a diverse group of industries, have publicly spoken out in support of section 1031 and oppose repeal of IRC §1031 Like-Kind Exchanges. See the full list of supporters here.
