How Will the One Big Beautiful Bill Act Affect 1031 Exchanges?

The new law includes many updates to the tax code, some of which may affect how real estate investors approach their 1031 strategies.

Like-kind exchanges have been part of the U.S. tax code for more than 100 years, allowing property owners to defer taxes on the sale of business or investment property when exchanging for another business or investment property. Even though 1031 exchanges have successfully helped Americans build wealth while promoting greater activity in the real estate industry since 1921, there’s always a chance IRC Section 1031 could be changed or eliminated entirely.

In fact, just eight years ago, Section 1031 did undergo a major change, as the Tax Cuts & Jobs Act of 2017 limited 1031 exchanges to real property. This meant it was no longer possible to exchange property like machinery or livestock, greatly complicating exchanges for farmland. Throughout the Biden Administration, there was talk that there could be a cap on the amount that could be deferred through Section 1031, or that it could be repealed.

On July 4th, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. This expansive bill contained many changes to taxation rules that will affect property owners, developers, and investors. Here are a few of the major components of the bill that will impact the real estate industry, and how exchangers may want to adjust their strategies based on these new rules.

The OBBBA did not repeal Section 1031

It’s true that over the past few years, there have been consistent worries that 1031 exchanges could be eliminated. Despite evidence that 1031 exchanges increase tax revenues while helping the economy, each year’s budget discussions created anxiety among those in the industry who didn’t want to see Section 1031 used as a bargaining chip.

Thankfully, the OBBBA did not contain any language limiting or repealing Section 1031. For the time being, the law is unchanged, which is good news for anyone who owns business or investment property. We don’t know what the future will bring, but it appears that the current administration doesn’t wish to touch Section 1031 further. We will of course continue to monitor news out of Washington and advocate for the merits of 1031 exchanges.

While Section 1031 wasn’t affected by the OBBBA, other provisions in the bill affect taxation for individuals and businesses, including the types of investors who typically perform 1031 exchanges.

Opportunity Zones were made permanent

One component of the Tax Cuts and Jobs Act of 2017 that had a major impact on the world of real estate was the creation of Opportunity Zones. Taxpayers could receive a variety of incentives when reinvesting capital gains in Qualified Opportunity Funds (QOFs) for deployment to projects in low-income areas designated as OZs.

OZs were initially set to expire at the end of 2026, but the OBBBA contained provisions to establish new OZ tracts and make OZ tax incentives permanent. For the real estate industry and the communities it serves, this will mean the continuation of a successful initiative to spur investment activity in underserved areas. This is especially true for rural areas, where investors can now see a 30% step-up in basis in addition to other OZ tax incentives. For investors, the new OZ incentives mean more opportunities to defer or even eliminate some of the tax burden from realized capital gains.

While a 1031 exchange still provides a path to full tax deferral when selling business or investment property, it isn’t always possible to find a property that allows one to defer the entire gain. When an exchange results in a taxable boot (or in the event of a failed exchange), investing the remaining gain in a QOF could be a way to reduce one’s overall tax burden.

As leaders in fund administration and impact reporting for Opportunity Zones, we at JTC see this component of the bill as a big win for America, as it will positively impact communities, investors, developers, and the economy as a whole.

Renewal of the qualified business interest deduction

Sec. 70105 of the OBBBA amended IRC Section 199A, which allows small businesses to deduct up to 20% of qualified business income (QBI). The OBBBA extends the QBI deduction, which had been set to expire.

This component of the bill has particular relevance for investors in Real Estate Investment Trusts (REITs), as dividend income from REITs is subject to the same 20% deduction. The OBBBA also increased the threshold for the percentage of assets a REIT may hold through a Taxable REIT Subsidiary (TRS) from 20% to 25% (SEC. 70439).

To learn more about REITs and how it’s possible to go from a 1031 property to REIT shares, read our blog on how a 721 upREIT exchange works.

Reinstatement of 100% bonus depreciation and raising of Sec. 179 thresholds

Per the IRS, “Section 179 of the tax code allows business taxpayers to deduct the cost of certain property as an expense when the property is first placed in service.” Since the TCJA, the maximum deduction was $1 million, and the deduction phase-out began at $2.5 million. After the OBBBA, the expensing limit for 2025 is $2.5 million and the phase-out threshold is $4 million.

The OBBBA also changed bonus depreciation under IRC §168(k), which previously had been lowered and was set to expire in 2027. Now, bonus depreciation has been returned to 100%. These provisions are important to those who own nonresidential property in the U.S., as they can increase deductions for investments in physical improvements to HVAC systems, roofs, and other structures. It could be possible for some property owners to take advantage of both Sec. 179 and Sec. 168 bonus depreciation simultaneously, depending on the situation. Those interested in exchanging into properties that require physical upgrades should also read our guide to improvement exchanges.

Enhanced credits for low-income housing and a return to the EBITDA standard

The OBBBA also contained sections valuable to owners of residential property, starting with an increase in the allocation of low-income housing tax credits (LIHTC) provided to states by 12%. Developers will also now “only need 25% of a project’s basis to be financed with tax-exempt bonds to qualify for 4% credits,” down from 50%, which should increase investments in affordable housing.

Section 163(j) was altered to change the types of residential housing contracts that can utilize the completed contract method, simplifying tax compliance for certain housing projects. The OBBBA also returned to an EBITDA standard for business interest deduction. These are important changes for developers of multifamily real estate, though perhaps not as impactful for individual investors as some other tax components of the bill.

Changes to estate taxes in the One Big Beautiful Bill Act

One aspect of the OBBBA not specifically related to real estate or property ownership, but important for investors thinking about estate planning, is Sec. 70106, which increases the estate and gift tax exemption amounts. The estate tax exemption will increase to $15 million in 2026, and by inflation thereafter.

As we’ve discussed before, 1031 exchanges and Delaware Statutory Trusts can be a key part of any estate plan because of the step-up in basis received upon death. By carefully executing a 1031 exchange strategy, it is possible to maximize the amount you leave for your heirs and simplify the process of dividing your estate.

What the OBBBA means for the future of 1031

Not all of these provisions will affect every property owner. Even if you have an estate large enough to be affected by the increased estate tax exemption, it may be a long time before the exemption amount impacts you. It’s also important to remember that some provisions are temporary, and could always be subject to change based on the balance of power in Washington.

If you’ve been considering a 1031 exchange into a new type of property or an investing strategy that includes real estate or Opportunity Zones investing, now may be the time to take advantage of the current rules. Even Section 1031 could be altered in the future, so it’s good to plan with contingencies in mind. As of now, 1031 exchanges continue to be a vital tax deferral and wealth-building strategy that can help everyone from large businesses to everyday investors, and we hope it will stay that way long into the future.