The One Big Beautiful Bill Act (OBBBA) became law on July 4, 2025, and it is the most significant tax legislation for real estate investors since the Tax Cuts and Jobs Act of 2017. If you own investment property, you need to understand what changed, what stayed the same, and how the new law affects your 1031 exchange strategy going into 2026 and beyond.
The short answer is that Section 1031 survived the OBBBA completely untouched. For years, the Biden administration's budget proposals had called for capping 1031 exchange deferrals at $500,000 per taxpayer per year. None of those restrictions made it into the final bill. You can still sell an investment property, reinvest the proceeds into a like-kind replacement property, and defer the entire capital gains tax with no dollar cap, no income limit, and no restriction on how many times you do it.
But the OBBBA did not just leave 1031 exchanges alone. It changed the tax environment around them in ways that make the strategy significantly more powerful. Understanding those changes is what separates investors who use the law strategically from those who simply react to it.
Section 1031 Is Fully Intact
The core mechanics of a 1031 exchange are unchanged. You have 45 days from the closing of your relinquished property to identify potential replacement properties, and 180 days to close on the replacement. You must use a qualified intermediary to hold the proceeds during the exchange period. You cannot take constructive receipt of the funds at any point. The replacement property must be of equal or greater value, and you must reinvest all net equity to achieve full tax deferral.
What the OBBBA confirmed is that none of the proposed limitations materialized. The $500,000 cap that appeared in multiple federal budget proposals between 2022 and 2025 was rejected. The proposal to eliminate 1031 exchanges for high-income taxpayers was rejected. The proposal to require a minimum holding period was rejected. Section 1031 enters 2026 exactly as it has operated for decades, with no new restrictions.
This matters because many investors had been holding off on transactions, waiting to see whether Congress would impose limits. That uncertainty is now resolved. If you have been sitting on appreciated property and waiting for clarity, the OBBBA provides it.
100% Bonus Depreciation Is Now Permanent
This is the headline change for real estate investors, and it interacts directly with 1031 exchange strategy. Under the Tax Cuts and Jobs Act of 2017, 100% bonus depreciation was scheduled to phase down starting in 2023 and disappear entirely by 2027. The OBBBA reversed that phasedown and made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025.
What this means in practice: when you acquire a replacement property through a 1031 exchange and commission a cost segregation study, any components reclassified from the 27.5-year building category to shorter-lived personal property or land improvements (typically 5, 7, or 15 years) are now fully deductible in year one. Permanently.
Consider a $2 million replacement property where a cost segregation study reclassifies $500,000 of the purchase price to shorter-lived components. Under the old phasedown schedule, that study would have generated a $100,000 first-year deduction in 2026 (20% of $500,000). Under the OBBBA, the same study generates a $500,000 first-year deduction. The difference is $400,000 in additional year-one deductions on a single property.
There is one critical timing rule to understand. Property acquired under a written binding contract signed before January 20, 2025 is subject to the old phasedown rates, regardless of when you closed or placed the property in service. The IRS confirmed this in Notice 2026-11. If you are completing a 1031 exchange and the replacement property was under contract before that date, verify which bonus depreciation rate applies before planning your tax strategy.
The Estate Planning Dimension Has Changed Dramatically
The OBBBA made the federal estate tax exemption permanent at $15 million per person, or $30 million for a married couple, indexed for inflation starting in 2027. Before the OBBBA, the exemption was scheduled to drop from $13.99 million back to roughly $7 million when the TCJA provisions expired.
For real estate investors who use 1031 exchanges as a long-term wealth-building strategy, this change is significant. The traditional "buy, exchange, die" strategy works as follows: you acquire a rental property, use 1031 exchanges to trade up into larger properties over time, and hold until death. At death, your heirs receive the properties at a stepped-up basis equal to fair market value. All the capital gains you deferred through decades of 1031 exchanges are eliminated. Your heirs owe no capital gains tax on the appreciation that occurred during your lifetime.
The OBBBA makes this strategy more accessible to more investors. With a $30 million exemption for a married couple, the vast majority of real estate portfolios will pass to heirs completely free of both capital gains tax (via stepped-up basis) and federal estate tax (via the expanded exemption). For investors with portfolios in the $3 million to $15 million range, the combination of 1031 exchanges and the OBBBA estate exemption creates a near-complete tax elimination strategy when executed correctly.
The Qualified Opportunity Zone Program Was Renewed
The Qualified Opportunity Zone program was set to expire for new investments after December 31, 2026. The OBBBA made it permanent and restructured it with rolling ten-year designations. Governors will designate new zones by July 1, 2026, effective January 1, 2027.
For investors considering a 1031 exchange, the renewed Opportunity Zone program is worth understanding as a comparison point. A 1031 exchange defers capital gains tax indefinitely, with no time limit on how long you can hold the replacement property. An Opportunity Zone investment defers gains for five years with a 10% basis step-up, and eliminates gains on the Opportunity Zone investment itself if held for ten years. The two strategies are not mutually exclusive, but they serve different situations. If you have a gain that does not qualify for a 1031 exchange (such as a gain from selling a business or securities), the renewed Opportunity Zone program may be the better tool.
The SALT Cap Increase Affects Itemizing Investors
The OBBBA increased the state and local tax (SALT) deduction cap from $10,000 to $40,000 for 2025, rising by 1% per year through 2029, then reverting to $10,000 in 2030. The cap phases down for taxpayers with modified adjusted gross income above $500,000.
For real estate investors who itemize deductions, this provides meaningful relief on personal residence property taxes and state income taxes. One detail worth noting: property taxes on investment and rental property reported on Schedule E are not subject to the SALT cap at all. They remain fully deductible as a business expense regardless of the cap. The SALT cap only applies to property taxes claimed as an itemized deduction on Schedule A, which typically means your primary residence.
What This Means for Your 1031 Exchange Strategy in 2026
The OBBBA did not change the rules of 1031 exchanges. It changed the context in which those exchanges operate, and that context is now more favorable than it has been in years. Permanent 100% bonus depreciation means that replacement properties acquired through an exchange can generate massive first-year deductions when combined with cost segregation. The expanded estate exemption means that the long-term "exchange until death" strategy is now accessible to a broader range of investors. The confirmed survival of Section 1031 means that the uncertainty that had been suppressing transaction volume is resolved.
If you are planning to sell investment property in 2026, the question is not whether a 1031 exchange makes sense. The question is whether your transaction is structured to take full advantage of the current law. That means engaging a qualified intermediary before you list the property, not after. It means understanding your 45-day identification window before you close on the relinquished property. And it means coordinating with your CPA on cost segregation timing so the bonus depreciation strategy is in place before you acquire the replacement property.
Frequently Asked Questions
Did the One Big Beautiful Bill eliminate 1031 exchanges? No. Section 1031 survived the OBBBA completely intact. No dollar caps, income limits, or holding period requirements were added. The exchange works exactly as it has for decades.
Does the OBBBA change the 45-day and 180-day deadlines? No. The identification and closing deadlines are unchanged. You still have 45 days to identify replacement properties and 180 days to close.
How does permanent bonus depreciation affect a 1031 exchange? When you acquire a replacement property through a 1031 exchange, you can commission a cost segregation study and take 100% bonus depreciation on any components reclassified to shorter-lived categories. This can generate substantial first-year deductions on the replacement property, in addition to deferring the capital gains from the sale.
What is the "buy, exchange, die" strategy? It refers to the long-term approach of acquiring investment property, using 1031 exchanges to trade up into larger properties over time, and holding until death. At death, heirs receive the properties at a stepped-up basis, eliminating all deferred capital gains. With the OBBBA's $15 million per-person estate exemption, most portfolios also avoid federal estate tax.
Do I still need a qualified intermediary under the OBBBA? Yes. The requirement to use a qualified intermediary is unchanged. You cannot take constructive receipt of the sale proceeds at any point during the exchange period.
[Contact 1031 Federal Exchange](https://1031federal.com/contact) for a free consultation before you list your property. The 45-day clock starts at closing, and preparation before that date is what determines whether your exchange succeeds.