1031 Exchange Activity Drops as Rate Uncertainty Persists

Section 1031 like-kind exchange activity declined 18% year-over-year in the first quarter of 2026 as rate uncertainty and narrower investment spreads kept many investors sidelined. The Federation of Exchange Accommodators (FEA), the industry trade group for qualified intermediaries, released the figures in its quarterly member survey published April 15.

Under Section 1031 of the Internal Revenue Code, investors can defer capital gains taxes by reinvesting proceeds from the sale of investment real estate into a like-kind property within 180 days. The strategy has been a foundational tool for real estate investors since the early 20th century, when Congress codified the like-kind exchange concept.

"The slowdown reflects the basic mismatch between the market of replacement properties and the prices investors are willing to pay," said Suzanne Baker, senior vice president and general counsel at Investment Property Exchange Services, the largest qualified intermediary in the United States. Baker said many exchangers who initiated transactions in the quarter ultimately let the 45-day identification window lapse, triggering tax recognition.

Interpretation of identification failures varies among accommodators. Some exchangers use the failure to unwind 1031 treatment voluntarily when they conclude that available properties do not meet investment standards. Others fail to identify under time pressure, a pattern that accelerated during the first quarter.

The FEA survey covered 47 qualified intermediaries handling more than 35,000 exchanges in 2025. Commercial and multifamily accounted for 62% of 2025 exchange volume, with the remainder in residential rental, retail, and agricultural properties. Exchange volume had held relatively flat from 2022 through 2024, with quarterly fluctuations under 5%.

Current administration policy could affect future volumes. A proposed 2026 budget package from the White House targets 1031 exchange treatment, limiting annual gain deferral to $500,000 per taxpayer. The proposal has not been incorporated into current legislative text but has drawn opposition from industry groups including the Real Estate Roundtable and NAR.

Academic research has produced mixed conclusions on 1031's macroeconomic effects. A 2023 study by the Tax Policy Center found that eliminating 1031 would reduce commercial real estate transaction volume by approximately 18 to 22%, with larger effects in markets already experiencing transaction slowdowns. A competing Ernst and Young study commissioned by the Real Estate Roundtable projected reduced investment, employment, and tax revenue from elimination.

"The 1031 market is highly elastic to rate movements and replacement-property availability," said Alex Hurd, a tax attorney at Bilzin Sumberg in Miami. Hurd expects second-quarter volume to rebound modestly if the Federal Reserve's June meeting produces a rate cut but said activity levels are unlikely to return to 2021 to 2022 peaks without improvement on both the supply and spread sides.