A 1031 Exchange Will Grow Your Real Estate Investments
The newly-minted One Big Beautiful Bill Act (OBBBA) keeps Section 1031 intact, layers on generous tax perks like permanent 100 % bonus depreciation, extends the 20 % Qualified Business Income (QBI) deduction, and quadruples the SALT cap—moves that together could super-charge like-kind exchanges even as tariffs, inflation, and high interest rates threaten to spoil the party. ([NEREJ][1], Dechert, Tax Foundation, Allen Matkins)
📌 Quick Primer: What Section 1031 Does
- Tax-deferral engine: Swapping business or investment property for “like-kind” real estate lets owners defer capital-gains taxes, provided they identify replacements within 45 days and close within 180 days. ([NEREJ][1])
- Growing popularity: Exchange volume peaked in 2021-22 and remains robust thanks to better investor education, creative structures (reverse & construction exchanges), and easy access to Delaware Statutory Trusts (DSTs). ([NEREJ][1])
1️⃣ Market Backdrop—Why Timing Matters
| Segment | 2025 Snapshot | Exchange Implication | |
|---|---|---|---|
| Residential | More listings + longer days-on-market, but prices at record highs. | Upsizers eye exchanges to reposition equity. | ([NEREJ][1]) |
| Commercial Office | Stabilizing as employers curb remote work. | Potential influx of leasehold improvements eligible for bonus depreciation. | ([NEREJ][1]) |
| Rates & Inflation | Fed signals possible H2 cuts—unless rising inflation (and tariffs) intervene. | Lower borrowing costs would turbo-charge exchange demand; higher costs could chill it. | ([NEREJ][1], Investopedia) |
2️⃣ The OBBBA: Four Provisions Every Exchanger Should Know
| Provision | Why It’s a Game-Changer | Key Caveats |
|---|---|---|
| Section 1031 Left Whole | Removes decades-old threat of repeal, giving long-term investors renewed confidence. | Congress can revisit later; stay vigilant. ([NEREJ][1]) |
| 100 % Bonus Depreciation (Permanent) | Immediate write-off for assets with ≤20-year life—think appliances, carpet, fencing—super-charges cash flow & offsets boot. | Property must be business/investment use; land itself excluded. ([NEREJ][1], Investopedia, Allen Matkins) |
| QBI 20 % Deduction Made Permanent | Pass-through real-estate partnerships lock in an extra 20 % income shield. | Phases out at high incomes—run projections. ([NEREJ][1], JD Supra) |
| SALT Cap Raised to \$40 k | High-tax-state owners (NY, CA, MA) get bigger write-offs, reducing overall tax hit on swaps. | Benefit phases out for top-bracket filers. ([NEREJ][1], Kiplinger) |
3️⃣ Headwinds: Tariffs, Costs & Rates
- Construction inputs (steel, lumber, concrete) cost more under new tariffs, inflating replacement-property prices and dampening new supply. ([NEREJ][1])
- If tariffs stoke inflation, the Fed may delay rate cuts, keeping mortgage costs—and cap-rate spreads—elevated. ([NEREJ][1], Investopedia)
- Result: Benefits of OBBBA could be muted if financing stays expensive or inflation erodes after-tax gains.
4️⃣ Strategy Playbook for Investors
- Pair Exchanges with Cost Segregation: Harvest 100 % bonus depreciation on acquired improvements to wipe out any taxable “boot.” (Allen Matkins)
- Explore DSTs for Passive Replacement Property: Diversify asset type & geography without active management. ([NEREJ][1])
- Run QBI + SALT Scenarios: Model combined effects; high-income filers may need entity restructuring to capture full benefit. (JD Supra, Kiplinger)
- Lock Rate Hedges Early: If tariff-driven inflation lingers, fixed-rate financing on replacement assets protects spread. (Investopedia)
- Monitor Implementation Guidance: IRS regulations will clarify eligible assets, phase-outs, and timing tests—stay tuned. (Tax Foundation)
5️⃣ Bottom Line
The OBBBA hands real-estate investors a powerful cocktail of certainty (Section 1031 preserved) and acceleration (bonus depreciation, QBI)—but tariffs and rate volatility could water it down. Staying agile with financing, tax modeling, and asset selection will separate the winners from the merely well-intentioned. ([NEREJ][1], Investopedia)
Further Reading
- Investopedia – OBBBA’s manufacturing & depreciation boosts. (Investopedia)
- Kiplinger – Personal tax impacts & SALT expansion details. (Kiplinger)
- Dechert LLP – Technical memo on bonus-depreciation restoration. (Dechert)
- Tax Foundation FAQ – Comprehensive Q\&A on OBBBA provisions. (Tax Foundation)
- Allen Matkins – Cost-segregation opportunities post-OBBBA. (Allen Matkins)
Sydney Harewood is a real estate professional with a passion for NYC’s architectural gems. For inquiries, call or message Syd at 📞646-535-3819. Experience the finest in NYC real estate with Syd’s expert guidance and deep knowledge of the city’s most exquisite properties.
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[1]: https://nerej.com/the-one-big-beautiful-bill-act-may-lead-to-many-big-beautiful-1031-exchanges-by-brendan-greene-and-mark-mccue ”
The One Big Beautiful Bill Act may lead to many big beautiful 1031 exchanges – by Brendan Greene and Mark McCue : NEREJ “
