– The major 2025 federal tax bill, H.R. 1., also known as the One Big Beautiful Bill Act, signed into law on July 4, 2025 did not repeal or cap Section 1031 Exchanges.
While President Biden's 2025 budget proposal did include provisions to eliminate the 1031 exchange, the recent shifts in the Presidency and Congressional makeup have significantly reduced the likelihood of such dramatic changes to the tax code.
A Section 1031 exchange—named for the corresponding section of the Internal Revenue Code—remains a valuable tax-deferral tool for real estate investors in 2025.
These rules require that the property has to be held for at least five years in total with the period of time the property was held as an exchange property included. The period of time the property was used as an exchange property needs to be backed out of the calculation for the principal residence use deferral.
Benefits of a 1031 Exchange
Avoid Capital Gains Tax: By continuously reinvesting in like-kind properties through multiple 1031 exchanges, you can defer capital gains taxes indefinitely, essentially avoiding them until you choose to cash out.
Many think the “2 year holding rule” for a 1031 Exchange is a formal requirement. It is not unless the buyer and seller are related parties. While holding a property for at least two years may help demonstrate the taxpayer's intent to hold the property for investment, the IRS does not mandate a specific holding period.
To avoid capital gains on a house sale in 2025, primarily use the IRS Section 121 exclusion for your primary residence, allowing single filers to exclude up to $250,000 and married couples $500,000 of profit, provided you meet ownership and use tests (lived in/owned for 2 of last 5 years) and haven't used it in 2 years. You can also increase your home's adjusted basis by deducting purchase costs, closing fees, and major capital improvements (not repairs) to reduce taxable gain, potentially bringing your profit below the exclusion limit.
Under a significant new law, including President Trump's "Big Beautiful Bill," the federal estate tax exemption is set to rise to $15 million per individual (and $30 million for couples) permanently starting in 2026, effectively making the estate tax irrelevant for most, while also extending provisions from the 2017 Tax Cuts and Jobs Act (TCJA) to provide certainty for high-net-worth families, though some specific deductions might be temporary.
1031 exchanges are a real estate tax break that allows commercial property sellers to exchange a business, trade, or investment property for another, like kind, property while deferring capital gains tax on the sale.
On a $100,000 capital gain, you'll likely pay 15% for long-term gains, resulting in about $15,000 in federal tax (plus potential state tax), but it could be 0% or 20% depending on your total taxable income and filing status, while short-term gains are taxed as ordinary income (potentially 22-24%).
To qualify for 0% capital gains tax, you must have long-term capital gains (assets held over a year) and your taxable income (after deductions) must fall below specific IRS thresholds, which change annually but are roughly <$48,350 for single filers and <$96,700 for married filing jointly for the 2025 tax year, allowing for higher total income when combined with deductions like the standard deduction. The key is keeping your adjusted gross income (AGI) low enough so that after subtracting deductions, your taxable income remains within these limits.
The Deferred Sales Trust is an effective 1031 exchange alternative to help business and real estate owners sell their assets and defer capital gains tax. Both the 1031 exchange and Deferred Sales Trust are well-established investment strategies.
Some of the major tax changes effective from April 1, 2025, are revised tax slabs, rebate of up to Rs. 60,000, revised ITRU deadlines, calculation of partner's remuneration allowable as a deduction and revised TDS/TCS threshold limits.
When you sell your primary residence, $250,000 of capital gains (or $500,000 for a couple) are exempted from capital gains taxation. This is generally true only if you have owned and used your home as your main residence for at least two out of the five years prior to the sale.
The "6-year rule" for Capital Gains Tax (CGT) in Australia allows you to treat a former main residence as tax-exempt for up to six years after you move out, even if you rent it out, enabling you to avoid CGT on any growth during that period. You qualify by moving out, choosing to treat it as your main home for tax, and can reset the rule by moving back in. If you rent it out for longer than six years, only the portion of the gain after the six-year mark becomes taxable.
J.P. Morgan Research expects house prices to rise by 3% overall in 2025. The higher-for-longer interest rate backdrop is here to stay, with mortgage rates expected to ease only slightly to 6.7% by the year end.
To prove the IRS's 2-out-of-5-year rule, you must show you owned and lived in your home as your primary residence for at least 24 months (two years) (not necessarily consecutive) within the five years before the sale, using documentation like utility bills, driver's license, voter registration, tax returns, bank statements, and mail all showing the home address. This proves you meet both the ownership and use tests for excluding capital gains on the sale, requiring documentation to back up your claim of residency during that period.
Current Status of IRC Section 1031
On July 4, 2025, President Donald J. Trump signed the “One Big Beautiful Bill” into law — a broad tax package aimed at stimulating investment. For real estate investors, the biggest win is what the bill didn't change: Section 1031 Like-Kind Exchanges remain fully intact.
If you don't reinvest 100% of your sale proceeds into your replacement property, the remaining cash—known as “boot”—will be subject to capital gains tax. To achieve full tax deferral, you must reinvest the total amount realized from your sale.