Is the 1031 exchange going away in 2026 or 2027?

Section 1031 is in force, has no sunset, and was untouched by the 2025 act

The statute at 26 U.S.C. section 1031 contains no expiration date. Its amendment history lists Public Law 115-97, signed December 22, 2017, as the most recent change, and Public Law 119-21 does not appear.

That act, signed July 4, 2025, restored 100% bonus depreciation, made opportunity zones permanent and made the qualified business income deduction permanent, as Rev. Proc. 2025-32 and the amended Code sections reflect. Its enrolled text contains no amendment to section 1031.

What the July 2025 act did and did not change for real estate investors is collected in the 2025 tax act for real estate investors.

The proposal on the record is a cap, not a repeal, and it never passed

Treasury's General Explanations of the administration's revenue proposals for fiscal years 2022 through 2025 each carried the same item under the heading "Repeal deferral of gain from like-kind exchanges." Despite the title, the text would have allowed deferral of up to $500,000 of gain per taxpayer each year, or $1 million for married couples filing jointly, and taxed only the excess.

The fiscal 2025 version would have applied to exchanges completed in taxable years beginning after December 31, 2024. The fiscal 2022 version used December 31, 2021. Neither date arrived with a law behind it.

A budget proposal is a request to Congress, not a rule. The longer history of narrowing proposals and what they would mean for DST holders is in will 1031 and DST benefits survive tax law changes.

Past changes protected exchanges already under way

When Congress last narrowed section 1031, it built in a transition. The 2017 change to real property only applied to exchanges completed after December 31, 2017, and did not apply where the relinquished property was disposed of, or the replacement received, on or before that date.

The 1989 amendment that added the related-party and foreign-property rules applied to transfers after July 10, 1989, but not to transfers made under a written binding contract in effect on that date. Both effective-date notes are printed with the statute.

Neither precedent binds a future Congress, and the fiscal 2022 proposal would have reached back to the start of the year it was proposed for. But the pattern so far is that a sale already closed or under binding contract has been treated under the law in force when it was made.

Worked example: what the proposed cap would have done to one exchange

Hypothetical, round numbers, using the proposal's terms only to show its scale; run your own numbers with your CPA. A married couple sells a rental with a $1,600,000 gain and reinvests everything in a replacement.

Under current law the full $1,600,000 is deferred. Under the proposed cap, $1,000,000 would be deferred and $600,000 recognized in the year of the sale, taxed at the depreciation and capital gains rates that apply to them.

A couple with a $700,000 gain would have seen no change, because the whole gain sits under the $1 million joint cap. The proposal would have mattered most to larger sellers and to owners who exchange several properties in one year.

• Current law: $1,600,000 deferred, nothing recognized.
• Proposed cap: $1,000,000 deferred, $600,000 recognized.
• A $700,000 gain: fully deferred under either rule.

Plan on current law, and close what you start

Waiting for certainty gives up a known benefit for an unknown risk. If you are selling, the rules that apply are the ones in force when the exchange is completed, so the practical protection is to finish inside the 180 days rather than to time the market around proposals. Whether to exchange at all is a separate decision from that timing.

Keep a backup on the identification list. A Delaware Statutory Trust interest can be named as a third property so that a failed purchase does not leave proceeds stranded, as explained in using DSTs as backup properties.