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. It allows for the deferral of capital gains taxes when an investment property is sold and the proceeds are reinvested in another “like-kind” property. While the tax is deferred rather than eliminated, this strategy enables investors to preserve capital, build wealth, and grow their portfolios over time.
What Qualifies as a Like-Kind Exchange?
Since the Tax Cuts and Jobs Act of 2017, Section 1031 applies only to exchanges of real property, not personal or intangible property. Additionally, the property must be held for productive use in a trade, business, or for investment. Properties held primarily for sale, personal residences, or vacation homes do not qualify. Both the relinquished and replacement properties must be located in the United States; U.S. property is not considered like-kind to foreign property.
The term “like-kind” is broadly interpreted. It refers to the nature or character of the property, not its grade or quality. For example, an apartment complex can be exchanged for a commercial building, vacant land, or industrial space, as long as both properties meet the “held for use” requirement.
2025 Updates: What’s New This Year?
- Expanded Definition of Like-Kind Properties: In 2025, the IRS broadened the definition of eligible real estate to include renewable energy projects, mixed-use developments, and other emerging asset classes, reflecting the changing real estate landscape.
- Enhanced Reporting Requirements: New IRS regulations require more detailed reporting with Form 8824, including property appraisals, transaction timelines, and evidence of compliance with strict identification and exchange deadlines. These rules aim to enhance transparency and prevent the abuse of the tax benefit.
- Cap on High-Value Transactions: A $5 million cap now applies to capital gain deferral. Any gains above that threshold are immediately taxable, making tax planning even more important for high-value investors.
- Green Investment Incentives: Investors exchanging into LEED-certified or energy-efficient buildings may qualify for extended deadlines and additional tax credits, aligning tax benefits with environmental goals.
Key Timing Rules
Successfully completing a 1031 exchange requires strict adherence to two critical IRS deadlines, which run concurrently—missing either can disqualify the transaction entirely. Within 45 days of selling the original property, investors must identify potential replacement properties in writing, known as the 45-Day Identification Period. Additionally, the entire exchange must be completed within 180 days of the sale, referred to as the 180-Day Exchange Period.
Working With a Qualified Intermediary
To comply with IRS rules, the exchange must be facilitated by a Qualified Intermediary (QI), who holds the sale proceeds and uses them to acquire the replacement property. Direct access to the funds by the investor disqualifies the exchange. Given the complexity of the process and increased reporting requirements, it’s essential to work with experienced CPAs, real estate attorneys, and a reputable QI.
Strategic Considerations for Investors
High-value investors should explore strategies such as partial exchanges or Opportunity Zone investments to manage tax exposure. The expanded definition of like-kind property also creates new opportunities to diversify portfolios and pursue sustainable, high-growth real estate sectors.
A Section 1031 exchange is not a tax loophole—it’s a strategic tool for deferring taxes and reinvesting in real estate. In 2025, legislative changes and new IRS guidance have made the rules more nuanced but also more opportunity-rich. With proper planning and professional guidance, investors can continue to utilize 1031 exchanges to build long-term value while remaining compliant in a changing tax environment. Contact your Stephano Slack tax manager or partner at 610-687-1600 or taxinfo@StephanoSlack.com to determine if your transaction qualifies.
Author John J. Loughlin, Jr., CPA, Partner, leads the Tax & Advisory Services Department at Stephano Slack. He specializes in tax compliance, planning, and projections. His expertise and personalized approach enable clients to navigate complex tax matters with confidence, ensuring peace of mind and optimal outcomes. John can be contacted at 610-710-4045 or jloughlin@stephanoslack.com.
Disclaimer: This content is for informational purposes only and doesn’t constitute professional advice.
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