2025: A Year in Retrospect — and What’s Ahead in 2026 for 1031 Exchanges

by Maura Snabes, Esq., CES, NTP

The 1031 exchange landscape in 2025 was defined less by sweeping change and more by reinforced stability—with a few meaningful developments that tightened compliance and strengthened the broader real estate investment environment.

What Changed in 2025

1) OBBBA: A Big Win for 1031 Exchanges

The biggest headline of 2025 was the passage of the “One Big Beautiful Bill” (OBBBA), which preserved Section 1031 for real estate. In practical terms, that meant:

• 1031 exchanges remained intact
• Real property exchanges continue to be a viable capital gains tax deferral strategy
• Investors retained one of the most powerful tools for portfolio growth and repositioning

OBBBA also made 100% bonus depreciation permanent, allowing immediate expensing of certain assets—an investment-friendly move that may continue to encourage activity in commercial real estate.

2) Enhanced Reporting & Compliance Requirements

While the exchange rules stayed in place and intact, the IRS introduced stricter reporting expectations, especially around Form 8824.

Key compliance shifts included:

• More detailed disclosures required on Form 8824
• Greater emphasis on clear documentation for taxpayers and Qualified Intermediaries (QIs)
• Reinforced enforcement of:
  • the 45-day identification deadline
  • the 180-day exchange completion deadline

What Stayed the Same in 2025

Even with revised reporting standards, the foundation and core mechanics of the 1031 exchange remained unchanged:

• The 45-day identification period and 180-day exchange period remain the backbone of every exchange
• A Qualified Intermediary (QI) is still required to hold exchange funds
• The like-kind rule continues to apply (real property used for business/investment exchanged for other business/investment real property)

Key Outlook Factors for 2026

The tone heading into 2026 is cautiously optimistic, supported by improving financing conditions and a more balanced market.

1) Anticipated Lower Interest Rates

With the Federal Reserve expected to continue easing policy rates, borrowing costs may decline. That would likely:

• improve investor purchasing power
• make replacement property financing more attainable
• increase the viability of exchange-driven upgrades into higher-performing assets

Overall outlook: lower rates = better exchange conditions.

2) Market Rebalancing and Normalization

Real estate appears to be moving toward a more predictable cycle after volatility in recent years. That could mean:

• home price appreciation closer to inflation
• fewer sharp swings in pricing and demand
• more stable valuation environments for replacement purchases

For exchangers, predictability often leads to more confident decision-making.

3) Continued Value of Tax Deferral

The 1031 exchange continues to thrive for one reason: tax deferral remains one of the strongest incentives in real estate investing.

It still supports:

• portfolio repositioning
• geographic relocation of investments
• scaling through tax-efficient reinvestment
• long-term wealth preservation

Sector-Specific Opportunities to Watch in 2026

Industry forecasts (including Colliers) suggest 2026 may mark a turning point for U.S. commercial real estate, with certain sectors emerging as attractive “like-kind” replacement options.

1. Multifamily & Industrial

These sectors are showing renewed stability, supported by:

• returning rent growth
• easing vacancy pressure
• investor demand for durable fundamentals

2. Data Centers

Data centers remain one of the strongest commercial plays heading into 2026 due to:

• AI and cloud computing growth
• continued digitization across industries
• increasing demand for server and storage infrastructure

From a CRE standpoint, this may be one of the most competitive replacement property categories.

3. Retail

Retail continues to prove resilient—especially where:

• tenants are well-capitalized
• properties adapt to evolving consumer behavior
• demand remains steady in strong local markets

Summary

2025 reinforced the strength of 1031 exchanges and they remained a core strategy for investors—just with more emphasis on precision, planning, and documentation. Looking ahead, 2026 appears broadly favorable, with potential rate cuts, a rebalancing market, and strong sector opportunities (especially multifamily, industrial, data centers, and resilient retail).

 

 

 

 

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