1031 Exchange Rules for 2026, From the Code Itself (Plus What 2023 IRS Data Shows)

What changed in 2018, and what the 2025 law did not change

Three dates explain almost every rule a seller runs into.

1979 and 1984: the deferred exchange. The famous case is Starker v. United States, 602 F.2d 1341 (9th Cir. 1979), which the IRS still cites in Rev. Proc. 2008-16. Congress answered it in 1984: Pub. L. 98-369, section 77(a), rewrote section 1031(a) and added the paragraph that sets the 45-day and 180-day limits (26 U.S.C. 1031, amendment notes). So a “Starker exchange” and a “deferred exchange” are the same thing today, and its rules are section 1031(a)(3) plus Treas. Reg. 1.1031(k)-1.

2017: real property only. The Tax Cuts and Jobs Act (Pub. L. 115-97, section 13303) replaced “property” with “real property” throughout section 1031(a)(1) and narrowed the exclusion in 1031(a)(2) to “real property held primarily for sale.” Equipment, vehicles, art and other personal property stopped qualifying for exchanges completed after December 31, 2017. The Treasury's final regulations define the term and “apply to like-kind exchanges beginning after December 2, 2020,” in the words of the 2025 Form 8824 instructions.

2025: nothing for section 1031. We searched the full enacted text of Public Law 119-21 (the July 4, 2025 reconciliation act, 139 Stat. 72) as published by the Government Publishing Office: it never mentions section 1031. It does amend neighbouring rules a seller cares about, such as section 168(k) (“Sec. 70301. Full expensing for certain business property.”) and the opportunity zone rules (“Sec. 70421. Permanent renewal and enhancement of opportunity zones.”). The source credits for 26 U.S.C. 1031 at the Legal Information Institute list Pub. L. 115-97 (December 22, 2017) as the last amendment. Anything described as a 2026 change to 1031 is, on this record, a market condition or a proposal, not an amendment to the statute (our reading).

The rules in one table

The dates of each deadline for a sale late in 2026, including how the tax return cuts the 180 days short, are worked out closing by closing in our 1031 exchange timeline for a late-2026 sale. This page does not repeat them.

What counts as real property, and as like kind

Treas. Reg. 1.1031(a)-3 decides what is real property for section 1031, and it is broader than a building on a lot. Improvements include “inherently permanent structures and the structural components of inherently permanent structures,” and the regulation lists many by name, from in-ground swimming pools and paved parking areas to cell towers, pipelines and grain silos. Intangible interests count too: the regulation names “Fee ownership; co-ownership; a leasehold; an option to acquire real property; an easement; stock in a cooperative housing corporation” and land development rights, among others. Property that is real property under the state or local law where it sits also counts, with exceptions.

What is never real property for section 1031, whatever state law says, is listed in the same regulation and repeated in the Form 8824 instructions: stock (except a few named types), bonds and notes, other securities, partnership interests (unless the partnership has elected out of subchapter K under section 761(a)), certificates of trust or beneficial interests, and choses in action. That is why shares of a REIT or units of a real estate fund cannot be replacement property, as our page on 1031 exchanges and real estate crowdfunding explains.

Inside real property, “like kind” is generous. The regulation says the words “have reference to the nature or character of the property and not to its grade or quality,” and gives as like-kind examples city real estate for a ranch or farm, improved for unimproved real estate, and “a leasehold of a fee with 30 years or more to run for real estate” (Treas. Reg. 1.1031(a)-1(b) and (c)). The one geographic limit is in the statute: U.S. and foreign real property are not like kind (section 1031(h)). Incidental personal property that comes with a building, such as furniture or laundry machines, does not spoil the exchange if its value “does not exceed 15 percent of the aggregate fair market value of the replacement real property” (Treas. Reg. 1.1031(k)-1(g)(7)).

Held for investment: homes, vacation homes and holding periods

Both properties must be held for productive use in a business or for investment. Section 1031 and its regulations set no minimum number of months (our reading of the statute and Treas. Reg. 1.1031(a)-1); what matters is the purpose for which the property is held.

A primary residence does not qualify. The 2025 Form 8824 instructions state it directly: “Section 1031 doesn’t apply to your exchange of real property if the property you gave up was used solely as your personal residence at the time of the exchange.” A home that was your main home for 2 of the last 5 years and is now a rental can combine the section 121 exclusion with a 1031 exchange; the instructions explain how to show both on Form 8824.

Vacation homes have a safe harbor. Rev. Proc. 2008-16 sets a safe harbor under which the IRS “will not challenge whether a dwelling unit qualifies as property held for productive use in a trade or business or for investment” for purposes of section 1031. For the home you give up, you must have owned it for 24 months before the exchange, and in each of the two 12-month periods you must have rented it at a fair rental for 14 days or more, with personal use that “does not exceed the greater of 14 days or 10 percent of the number of days during the 12-month period that the dwelling unit is rented at a fair rental.” The same tests apply to the replacement home for the 24 months after the exchange. Outside the safe harbor, the question is decided on the facts; the revenue procedure itself cites a Tax Court case in which two lakeside homes used only by their owners did not qualify.

The deferred exchange: identification and the cash

Most exchanges today are deferred: you sell, an intermediary holds the proceeds, and you buy the replacement later. Three rules in Treas. Reg. 1.1031(k)-1 decide whether that works.

Identify correctly. The identification must be in a written document you sign, delivered before day 45 to someone who is not a disqualified person (usually the intermediary). Real property is “unambiguously described if it is described by a legal description, street address, or distinguishable name.” You may name the “3-property rule” set (three properties of any value) or use the “200-percent rule” (any number whose total value at the end of the identification period is no more than twice the value of what you sold). Identify more and you are “treated as if no replacement property had been identified,” unless you actually receive identified property worth “at least 95 percent of the aggregate fair market value of all identified replacement properties.” Property you receive before day 45 counts as identified.

Never be in receipt of the money. If you can reach the sale proceeds, the exchange becomes a sale. The regulation offers four safe harbors: a security or guarantee arrangement, a qualified escrow account or qualified trust, a qualified intermediary, and interest or growth factors on the held funds (Treas. Reg. 1.1031(k)-1(g)). The agreement must expressly limit your rights to receive, pledge, borrow or otherwise obtain the benefit of the money before the exchange period ends. A qualified intermediary is the safe harbor most sellers use; it is a safe harbor, not the only legal path.

Pick an intermediary who is not your agent. A disqualified person includes anyone who acted as your “employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the 2-year period ending on the date of the transfer of the first of the relinquished properties,” with exceptions for routine exchange services, title and escrow work (Treas. Reg. 1.1031(k)-1(k)).

Boot and mortgage relief: the part that gets taxed

An exchange can be partly taxable. Under section 1031(b), when you receive money or other property along with the like-kind property, gain is recognized “in an amount not in excess of the sum of such money and the fair market value of such other property.” Section 1031(d) adds that a liability the other side takes over “shall be considered as money received by the taxpayer on the exchange.” Losses are never recognized in an exchange (section 1031(c)).

The regulation's two examples are the clearest explanation of mortgage boot (Treas. Reg. 1.1031(d)-2):

The practical rule that follows (our reading): to defer everything, buy replacement property at least equal in value to what you sold and replace the debt you paid off with new debt or with cash you add. Cash you add offsets debt relief; debt you take on does not offset cash you take out.

Related parties: the two-year rule

Section 1031(f) is what most people mean by the two-year rule. If you exchange property with a related person and, “before the date 2 years after the date of the last transfer which was part of such exchange,” either of you disposes of the property received, the deferral is undone, with the gain taken into account on the date of that disposition. A related person is anyone with a relationship described in section 267(b) or 707(b)(1); the Form 8824 instructions list “your spouse, child, grandchild, parent, grandparent, brother, sister, or a related corporation, S corporation, partnership, trust, estate, or tax-exempt organization.”

Three dispositions do not count (section 1031(f)(2)): one after the death of either party, an involuntary conversion where the threat arose after the exchange, and one where you establish that neither the exchange nor the disposition had tax avoidance as a principal purpose. The clock is suspended while your risk of loss is substantially diminished, for example by a put or a short sale (section 1031(g)). Going through an intermediary does not get around the rule: an exchange “structured to avoid the purposes of this subsection” is not covered by section 1031 at all (section 1031(f)(4)), and the Form 8824 instructions tell you not to file the form in that case but to report a sale. You must file Form 8824 for the two years after a related-party exchange.

Reverse exchanges, tenancies in common and DSTs

Reverse (parking) exchanges. If you must buy before you sell, Rev. Proc. 2000-37 gives a safe harbor: an exchange accommodation titleholder takes title, and no later than five business days after that transfer you and the titleholder sign a written qualified exchange accommodation agreement (section 4.02(3)); the property to be given up must be identified within 45 days, the deal finished within 180, and the combined parking time cannot exceed 180 days. Rev. Proc. 2004-51 added that the safe harbor does not apply if you owned the parked property within the 180 days before it was transferred to the titleholder.

Tenancy-in-common interests. Rev. Proc. 2002-22 is not a safe harbor: it sets the conditions under which the IRS will consider a private letter ruling that a co-ownership of rental real property is not a partnership. Among them, title is held as tenants in common under local law and the number of co-owners “must be limited to no more than 35 persons,” with spouses counted as one. A TIC interest is real property only if the arrangement is not a business entity; partnership interests do not qualify.

Delaware statutory trusts. Rev. Rul. 2004-86 holds that “A taxpayer may exchange real property for an interest in the Delaware statutory trust described above without recognition of gain or loss under § 1031,” because the investors are treated as owning undivided fractional interests in the real estate rather than a beneficial interest in a trust. The ruling names the trustee powers that would turn the trust into a business entity: disposing of the property and buying new property, renegotiating or entering into leases, renegotiating or refinancing the debt, investing cash to profit from market fluctuations, and making more than minor non-structural changes. What DSTs cost is in our analysis of DST Form D filings, and what happens when a sponsor folds DST owners into a REIT is in our 721 exchange guide.

Disaster relief: the only extension

There is no general extension of the 45 or 180 days. Rev. Proc. 2018-58, section 17, postpones the deadlines that fall on or after the date of a federally declared disaster “by 120 days or to the last day of the general disaster extension period” announced for that disaster, whichever is later, but never past the due date of the return (including extensions) for the year of the transfer, or one year. It applies only when the IRS announces relief for that disaster and only to affected taxpayers or those who have difficulty meeting a deadline for the reasons the revenue procedure lists.

What the IRS data shows: Form 8824, 2019 to 2023

None of the pages that rank for “1031 exchange rules” that we checked on October 7, 2026 say how many exchanges taxpayers actually report. The IRS does, inside its Statistics of Income line-item books, where every line of Form 8824 is printed with the estimated number of forms and dollar amount. We read the five latest individual editions (Publication 4801, tax years 2019 to 2023), the two latest partnership editions (Publication 5035, 2022 and 2023) and the latest corporation edition (Publication 5108, 2022). All amounts below are SOI estimates from samples, in billions of dollars rounded from the thousands SOI prints; percentages are our arithmetic.

What the tables say, read carefully:

• 2021 and 2022 were the peak; 2023 fell by about half. Individuals' deferred gain dropped from $46.98 billion to $23.72 billion (down 49.5%), and partnerships' from $42.38 billion to $27.38 billion (down 35.4%). Together the two went from $89.36 billion to $51.11 billion, down 42.8% (our arithmetic). The 2023 corporate edition is not out yet.
• Exchanges are rarely all-or-nothing. In 2023, 14,696 of 54,746 individual forms (26.8%) reported cash, other property or net debt relief on line 15, and individuals recognized $4.20 billion of $27.93 billion realized: 15.1% of the gain was taxed, the highest share in the five years (our arithmetic).
• Partnership exchanges are bigger. The average deferred gain was $1.98 million per partnership Form 8824 in 2023 against $433,000 per individual form (our division of SOI totals; a form can summarize several exchanges, so this is not a per-deal figure).
• Real estate was always most of it. Using SOI data for 2007, the Treasury's Office of Tax Analysis found that real estate accounted for 92.8% of individuals' deferred gain and 88.2% of partnerships', while 51.8% of C corporations' deferral came from vehicles, which no longer qualify. Deferred gain that year was $21.3 billion for individual returns, $35.6 billion for partnerships and $25.8 billion for C corporations.

Three cautions. SOI counts forms, not exchanges: the instructions let you “file a summary on one Form 8824” for several exchanges, and partnerships can attach several forms to one return. Form 8824 also carries section 1043 conflict-of-interest sales in Part IV, though the deferred-gain line we use is Part III. And the corporate figures aggregate the 1120 series, so they are not strictly comparable with the Treasury's 2007 C-corporation number.

What a seller can do with this

• Check the property first, the deal second. Is it real property under Treas. Reg. 1.1031(a)-3, held for investment or business, and not inventory? If part of it was your home, plan the section 121 split before you list it.
• Price the boot before you sign. Compare the debt you are paying off with the debt you will take on, and the cash you will take out with the cash you will put in. Each dollar of net debt relief or cash out is taxable up to your gain.
• Write the identification like a lawyer would read it: street address or legal description, signed, delivered to the intermediary, and within the 3-property or 200% limits. Name backups inside those limits, not beyond them.
• Keep relatives out, or keep the property for two years. If the seller or buyer on either side is related to you, diary the two-year date and the Form 8824 filings for the following two years.
• Choose the intermediary for who it is not: not your recent attorney, accountant, broker or agent. Ask how the exchange agreement restricts your access to the funds.
• Do not wait for a law change. The 2025 law left section 1031 alone; the rules above are the ones that apply to a 2026 sale.

FAQ

Sources, read and saved on October 7, 2026: 26 U.S.C. 1031 with its notes and source credits (Legal Information Institute, saved October 5, 2026); 26 CFR 1.1031(a)-1, 1.1031(a)-3, 1.1031(b)-1, 1.1031(d)-2 and 1.1031(k)-1 as published on the eCFR (text as of October 1, 2026); Public Law 119-21 as published by the Government Publishing Office; Rev. Proc. 2000-37, Rev. Proc. 2002-22, Rev. Rul. 2004-86, Rev. Proc. 2004-51, Rev. Proc. 2008-16 and Rev. Proc. 2018-58 from the Internal Revenue Bulletin; IRS Instructions for Form 8824 (2025) and Publication 544; IRS Statistics of Income Publication 4801 (individual line-item estimates, tax years 2019 to 2023), Publication 5035 (partnerships, 2022 and 2023) and Publication 5108 (corporations, 2022); and U.S. Treasury Office of Tax Analysis, The Tax Treatment of Like Kind Exchanges (2014). SOI figures are estimates based on samples. Sums, differences, averages and percentages are our arithmetic. This is analysis of public documents and the law, not tax, legal or investment advice.