The federal government recently passed the 21st Century ROAD to Housing Act, one of the most significant housing-related pieces of legislation in years. While much of the discussion has focused on increasing housing supply and expanding homeownership opportunities, the law also contains provisions that real estate investors should understand.

Perhaps the most important takeaway for investment property owners is what didn't change.

Despite speculation leading up to the bill's passage, Section 1031 like-kind exchanges remain fully intact. Investors can still defer eligible capital gains taxes by exchanging investment or business-use real estate for other qualifying real estate, provided IRS requirements are satisfied.

For many property owners, the new law may create an opportunity to review their current real estate holdings and determine whether their existing portfolio still aligns with their long-term financial objectives.

This article explains the major provisions of the legislation, discusses how they could influence the real estate market, and outlines why some investors may choose to evaluate whether a 1031 exchange fits into their overall investment strategy.

What Is the 21st Century ROAD to Housing Act?

The 21st Century ROAD to Housing Act is a federal housing bill intended to improve housing availability across the United States.

Rather than changing tax laws, the legislation primarily focuses on:

• Increasing housing supply
• Making financing more accessible for certain housing improvements
• Supporting multifamily housing development
• Streamlining portions of the development process
• Reducing certain barriers to housing construction

For real estate investors, two provisions stand out.

1. Expanded Financing for Accessory Dwelling Units (ADUs)

Section 303 allows eligible FHA Title I Property Improvement Loans to be used for constructing Accessory Dwelling Units (ADUs).

An ADU is an additional residential unit located on the same property as a primary residence.

Examples include:

• Backyard cottages
• Garage conversions
• Detached guest houses
• Basement apartments
• Above-garage apartments

The legislation may make financing ADU construction more accessible for eligible homeowners.

Over time, increased ADU development could contribute additional rental housing inventory in many communities.

2. Restrictions on Certain Large Institutional Buyers

Another notable provision limits certain large institutional investors that own hundreds of single-family homes from acquiring additional existing residential properties under specific circumstances.

The intent is to reduce competition from very large buyers and create additional opportunities for individual purchasers and smaller investors.

Exactly how this provision affects local markets will depend on numerous factors including:

• Geographic location
• Local housing demand
• Housing inventory
• Interest rates
• Regional economic conditions

The overall impact may vary significantly from one market to another.

What the New Law Did NOT Change

One of the biggest questions investors have asked is whether the legislation changed Section 1031 exchanges.

The answer is simple:

No.

The bill leaves existing Section 1031 exchange rules in place.

Investors who sell qualifying investment real estate may still defer eligible capital gains taxes by completing a properly structured like-kind exchange that complies with IRS requirements.

A Section 1031 exchange remains a commonly used tax-deferral strategy for certain real estate investors

Investors should also recognize that 1031 exchanges involve strict IRS deadlines, replacement property requirements, transaction costs, and investment risks. Deferring taxes does not eliminate future tax obligations, and not all investors will benefit from an exchange strategy

Understanding the Value of a 1031 Exchange

A 1031 exchange allows an investor to sell one investment property and acquire another qualifying investment property without immediately recognizing capital gains taxes, assuming all IRS requirements are met.

Instead of paying taxes immediately upon sale, taxes are generally deferred until a future taxable transaction occurs.

Many investors use 1031 exchanges to:

• Consolidate multiple properties
• Diversify geographically
• Replace high-maintenance properties
• Acquire different property types
• Improve cash-flow characteristics
• Transition into professionally managed real estate
• Simplify estate planning
• Reposition their portfolio

Every investor's objectives are different.

A 1031 exchange is not appropriate for everyone, but it remains an important planning tool.

Why Some Investors May Review Their Portfolio After the New Law

The new legislation does not automatically mean investors should buy or sell real estate.

However, it may provide a good reason to review existing holdings.

Questions worth asking include:

• Does this property still fit my long-term goals?
• Has appreciation changed my equity position?
• Do I still want active property management?
• Would I prefer different property types?
• Am I concentrated in one geographic market?
• Have maintenance expenses increased?
• Has tenant management become more difficult?
• Would a different investment better match my retirement objectives?

These are planning questions rather than market timing decisions.

How ADUs Could Influence Property Owners

The expanded financing provisions may encourage additional ADU construction over time.

Potential implications include:

• More rental housing inventory
• Increased flexibility for homeowners
• Additional rental income opportunities for some property owners
• Increased interest in properties with ADU potential

Actual outcomes will depend on local zoning laws, permitting requirements, financing availability, construction costs, and market demand.

Not every property can support an ADU, and results will differ across communities.

Housing Supply May Continue to Evolve

The legislation also includes broader housing initiatives designed to encourage additional housing development.

These provisions include efforts to:

• Streamline certain permitting processes
• Support multifamily housing
• Expand financing programs
• Encourage additional housing construction

Over time, increased housing supply could influence local markets differently depending on regional conditions.

Some areas may experience increased development activity while others may see little change.

Why Investors May Consider Reviewing Their Exit Strategy

Many investors own rental properties purchased years or even decades ago.

Over time those properties may experience:

• Appreciation
• Higher maintenance costs
• Deferred repairs
• Tenant turnover
• Increased property taxes
• Insurance increases
• Management challenges

For some owners, this creates an opportunity to evaluate whether continuing to own the property remains consistent with their financial goals.

That evaluation may include discussing a potential 1031 exchange with qualified professionals.

Potential Reasons Investors Explore a 1031 Exchange

Every investor's situation is unique.

Depending on individual objectives, investors sometimes consider a 1031 exchange to:

Defer Capital Gains Taxes

Rather than immediately recognizing taxable gain, eligible investors may defer taxes through a properly structured exchange.

Reposition a Portfolio

Investors may choose to exchange into different markets or different property types.

Diversify Holdings

Some owners become concentrated in one location or one asset class.

Diversification may reduce concentration risk, although it does not eliminate investment risk.

Reduce Active Management

Some investors eventually prefer investments requiring less day-to-day involvement.

Align Investments With Retirement Goals

Investment objectives often change approaching retirement.

Some investors prioritize:

• Simplicity
• Income needs
• Estate planning
• Geographic diversification
• Reduced management responsibilities

Important Considerations Before Selling

Selling investment property involves more than market conditions.

Owners should evaluate:

• Current financing
• Existing depreciation
• Capital gains implications
• State taxes
• Future income needs
• Estate planning goals
• Replacement property availability
• Cash-flow objectives

These considerations should be discussed with qualified tax and legal professionals before making decisions.

Questions to Ask Before Completing a 1031 Exchange

If you're considering selling investment real estate, consider asking:

• Does my current property still meet my investment objectives?
• What taxes could apply if I sold without a 1031 exchange?
• Would exchanging improve diversification?
• How would replacement properties compare?
• What deadlines would apply?
• How much debt would need to be replaced?
• What are the potential risks?
• How would this fit within my overall financial plan?

The Importance of Planning Early

One common mistake investors make is waiting until after accepting an offer before exploring a 1031 exchange.

Proper planning generally begins before the sale closes.

Early planning allows investors to:

• Understand IRS timelines
• Coordinate with a qualified intermediary
• Evaluate replacement property options
• Review financing
• Coordinate with tax professionals
• Build a thoughtful investment strategy

Planning ahead often provides greater flexibility.

The Bottom Line

The 21st Century ROAD to Housing Act introduces several changes intended to expand housing opportunities across the country.

Among the most notable provisions are expanded financing opportunities for certain ADU construction projects and restrictions affecting some large institutional homebuyers.

Just as important, the legislation leaves Section 1031 exchanges unchanged.

For owners of investment real estate, this may be an appropriate time to review existing properties, reassess long-term goals, and determine whether current holdings continue to support their overall financial strategy.

While no legislation can predict future market performance, understanding how new laws interact with existing tax rules can help investors make more informed decisions.

If you own investment real estate and are considering selling, discussing your options with your financial advisor, CPA, attorney, and qualified intermediary before entering into a purchase contract can help ensure you understand the available strategies and the applicable rules.

Important Disclosures

This article is provided for educational and informational purposes only and should not be construed as tax, legal, accounting, or investment advice, or as a recommendation to buy or sell any investment or real estate. The discussion of the 21st Century ROAD to Housing Act is a general summary and does not address every provision of the legislation. Laws, regulations, and IRS guidance may change, and their application depends on individual circumstances.

A Section 1031 like-kind exchange involves strict IRS rules, including identification and completion deadlines, and may not be appropriate for every investor. Tax deferral is contingent upon satisfying all applicable legal and tax requirements. Investments in real estate involve risks, including possible loss of principal, changes in property values, market conditions, financing availability, tenant risk, liquidity constraints, and legislative or regulatory changes. Diversification does not ensure a profit or protect against loss.

Investors should consult with a qualified intermediary, CPA, tax advisor, and attorney before making decisions regarding a property sale or a Section 1031 exchange.