Are 1031 exchanges being eliminated in 2026?
No. As of early 2026, Section 1031 remains intact for real property held for investment or business use. Recent housing legislation, including the 21st Century ROAD to Housing Act, does not repeal the like-kind exchange. The core ability to defer capital gains taxes on qualifying real estate is still in place under federal law.
If you own investment property in Newport Beach, Laguna Beach, or anywhere along the coast and you have heard rumors that 1031 exchanges are about to disappear, you are not alone. Almost every tax cycle, the same story resurfaces. Investors get nervous. Sales get paused. Phones start ringing.
Here is the short answer before we go deeper: Section 1031 has not been eliminated, and there is no current federal bill on the table to repeal it. First American Exchange Company, one of the largest Qualified Intermediaries in the country, confirmed this position in its April 2026 update. Their guidance lines up with what tax counsel and the National Association of Realtors are also tracking.
That said, real estate policy is moving in 2026. Some of those changes affect investor behavior even when they do not touch Section 1031 directly. So if you are weighing a sale or a portfolio shift this year, here is what actually matters.
What Has and Has Not Changed
The core structure of Section 1031 has been in the tax code in some form for over 100 years. The most recent meaningful change came through the 2017 Tax Cuts and Jobs Act, which took effect in 2018. That law removed personal property — equipment, aircraft, artwork, vehicles — from 1031 eligibility.
Real property was left alone. That means:
- Investment real estate still qualifies
- Commercial property still qualifies
- Multifamily and rental properties still qualify
- Land held for investment still qualifies
- Certain long-term leaseholds may still qualify
For most coastal OC investors we work with whether that is a Newport rental, a Corona del Mar duplex, or a triple-net commercial lease, the rules that applied in 2024 and 2025 still apply now.
The Real 2026 Story: The 21st Century ROAD to Housing Act
The bill drawing the most attention is not a 1031 bill at all. The 21st Century ROAD to Housing Act passed the Senate on March 12, 2026, by a vote of 89 to 10. It now sits with the House for further consideration.
The headline provision restricts large institutional investors defined as entities with investment control of 350 or more single-family homes from purchasing additional single-family properties. There are exceptions for build-to-rent, renovate-to-rent, and certain homeownership-pathway programs, but those carry a seven-year disposal requirement.
For an individual investor selling a Laguna Beach rental or a Newport Coast second home, this bill does not change your day-to-day. It is aimed at large rental portfolios, not at the people who own one to ten investment properties. But it matters for the broader market because it has already moved investor sentiment. Publicly traded single-family rental companies saw immediate stock declines after the Senate vote. Capital flow signals like that ripple into pricing and inventory.
The California Layer
There is one local wrinkle worth understanding. Under California Franchise Tax Board (FTB) rules, if you complete a 1031 exchange by selling California real estate and acquiring replacement property in another state, you have an annual reporting obligation. When the replacement property is eventually sold, California can recognize the previously deferred gain attributable to the California-sourced property.
This is not a federal change. It is a long-standing state-level conformity rule. But for a Newport Beach owner trading into a Texas or Arizona property, it is the kind of detail that needs to be on your radar before, not after, the exchange closes.
Why 1031 Keeps Coming Up in Tax Reform
Even when no bill is on the table, 1031 surfaces in tax discussions for a few reliable reasons:
- Federal deficit pressure. With U.S. debt over $38 trillion, lawmakers regularly review provisions that affect revenue timing.
- Pay-for proposals. Large tax bills sometimes propose capping 1031 deferral at certain income thresholds. Most of these proposals have not advanced into law.
- Capital gains policy debates. Anything that defers gains naturally enters the conversation when capital gains policy is on the table.
- Election and budget cycles. Reform talk intensifies during major budget negotiations and economic transitions.
Headlines amplify proposals that never advance. That is worth remembering before you let a news cycle dictate the timing of a major real estate decision.
What to Do If You Are Thinking About a Sale This Year
If you are considering selling an investment property in 2026, the most useful thing you can do right now is plan early. Here is what that looks like in practice:
- Start with the timing reality. A 1031 exchange runs on a 45-day identification window and a 180-day closing window from the date you sell. Last-minute exchanges create unnecessary risk.
- Pick your replacement targets before you list. In coastal OC, replacement inventory in your price band can be thin. Knowing what you are trading into protects your basis and your timeline.
- Choose your Qualified Intermediary early. First American Exchange Company is one option. There are others. You want a QI who is well-capitalized and segregates funds.
- Loop in your CPA on the California reporting piece if you are exchanging into out-of-state property.
The investors who get the best outcomes are the ones who treat the exchange as a planned transaction, not a reaction.
Frequently Asked Questions
No. As of early 2026, no federal legislation eliminates 1031 exchanges for real property. Reform discussions usually focus on caps or thresholds rather than full repeal, and none have advanced into law.
Does the 21st Century ROAD to Housing Act affect 1031 exchanges?Not directly. The bill restricts large institutional investors with 350 or more single-family homes from buying additional single-family properties. It does not change Section 1031 eligibility or the exchange process for individual investors.
What changed about 1031 exchanges in 2018?The 2017 Tax Cuts and Jobs Act removed personal property, equipment, vehicles, artwork, aircraft from 1031 eligibility starting in 2018. Real property held for investment or business use was not affected and still qualifies.
Can I 1031 a Newport Beach rental into an out-of-state property?Yes. The federal exchange rules apply nationally. Be aware that California requires annual reporting on out-of-state replacement property acquired through a California 1031 exchange, and previously deferred gain attributable to California-sourced property can be recognized when the replacement is later sold.
What happens if 1031 is ever repealed?If Section 1031 were repealed, investors would generally recognize capital gains on sale without the ability to defer through an exchange. Retroactive elimination of completed transactions would be highly unusual, major tax changes have historically not invalidated transactions already closed.
If you are weighing a 1031 exchange on a property this year, the timing details matter more than the headlines. Every property and every investor situation is different, and the right move depends on your basis, your replacement target, and your timeline.
This is the kind of conversation we have regularly with clients. If you want to talk through whether a 1031 makes sense for your specific situation, call or text Victor & Suzanne Vasu, 949-677-5268 | 760-776-3333.
This article is for general informational purposes and does not constitute tax, legal, or financial advice. Consult your CPA, attorney, or Qualified Intermediary about your specific situation.
