# Three New Washington Housing Laws Taking Effect June 11 — What They Mean for 1031 Exchanges
Governor Ferguson signed a package of housing bills during the 2026 session, and three of them take effect on June 11, 2026. None of these laws mention 1031 exchanges directly — but every one of them changes the landscape for investment property in Washington, which means every one of them matters to exchangers.
Here is what each bill does, and why it should be on your radar if you own, sell, or buy investment real estate in this state.
SB 6026 — Residential Development in Commercial and Mixed-Use Zones
What it does. Cities and counties with populations of 30,000 or more can no longer ban residential uses in areas zoned for commercial or mixed-use development. The law also limits how much of a jurisdiction's commercial acreage can require ground-floor retail — no more than 40 percent. Publicly subsidized affordable housing is exempt from the retail mandate entirely.
Jurisdictions have 18 months to adopt compliant ordinances. After that, the state law supersedes any conflicting local regulation.
What it means for exchangers. This is the most significant bill in this package for anyone planning a 1031 exchange. Vacant strip malls, empty big-box stores, underused parking lots, and aging commercial buildings in dozens of Washington cities are now potential residential conversion sites. That is new replacement property inventory that did not exist before June 11.
If you are selling investment property and looking for replacement properties, commercial-to-residential conversions and mixed-use developments just became easier to entitle. If you are an investor eyeing a value-add play — buying a tired commercial property and converting it to apartments — the zoning barrier that would have stopped you in many jurisdictions is gone.
For improvement exchanges specifically, SB 6026 opens up a category of projects that previously required a lengthy rezone process before construction could even begin. Under the new law, if the property sits in a qualifying commercial or mixed-use zone, the residential use is permitted by right.
Citation: SB 6026, Chapter 236, 2026 Laws. Effective June 11, 2026.
HB 2304 — Increasing the Supply of Condominiums
What it does. Washington's condominium construction has accounted for less than one percent of new housing units over the past decade. The primary reason is liability exposure — the implied warranty provisions under the Washington Uniform Common Interest Ownership Act (WUCIOA) make construction defect insurance prohibitively expensive for smaller projects.
HB 2304 expands the "2-10" express warranty alternative to include condominium buildings of up to four stories containing 12 or fewer units. The previous limit was three stories. The express warranty provides one year of coverage for workmanship and materials, two years for mechanical systems, and ten years for structural defects — backed by warranty insurance rather than traditional construction defect coverage.
The bill passed both chambers unanimously: 94-0 in the House and 47-0 in the Senate.
What it means for exchangers. Condominiums are like-kind property under IRC §1031. A single-family rental can be exchanged into a condo. A duplex can be exchanged into a condo. A commercial building can be exchanged into a condo. The property type does not matter — what matters is that both properties are held for investment or use in a trade or business.
The practical problem has been that very few condominiums are being built in Washington, which limits replacement property options for exchangers who want to downsize into a lower-maintenance investment. HB 2304 attacks that problem directly. By making four-story, twelve-unit condo projects financially viable for developers, it should increase the supply of smaller condominium buildings over the next several years — exactly the kind of replacement property that appeals to investors looking to simplify their portfolios through a 1031 exchange.
This is also relevant for investors who own older condo units. As new supply comes online, it creates liquidity in the existing market, making it easier to sell a current condo investment and exchange into something else.
Citation: HB 2304, Chapter 7, 2026 Laws. Effective June 11, 2026.
HB 1345 — Detached Accessory Dwelling Units Outside Urban Growth Areas
What it does. Counties planning under the Growth Management Act can now adopt ordinances permitting one detached accessory dwelling unit (DADU) per lot in areas outside of urban growth boundaries. The law includes code enforcement provisions — owners of unpermitted DADUs face a minimum $1,000 civil infraction and mandatory removal if they do not voluntarily come into compliance. Counties must report annual DADU permit data to the Department of Commerce.
What it means for exchangers. If you hold rural investment property — a rental on acreage, a farm, timberland with an existing dwelling — this law gives you a tool to increase both rental income and property value by adding a second dwelling unit on the same parcel. That matters in two contexts.
First, for investors considering selling rural property: adding a permitted DADU before listing can increase the sale price, which means more equity to roll into your replacement property through a 1031 exchange.
Second, for improvement exchanges: an exchanger could acquire a rural parcel and use exchange funds to construct a DADU as part of the replacement property improvements. The key requirement is that the improvements must be completed within the 180-day exchange period (or the due date of the exchanger's tax return, whichever comes first), and the property must be held by a qualified Exchange Accommodation Titleholder during construction if structured as a reverse or improvement exchange.
The code enforcement provisions also matter. If you are buying rural property as a replacement in a 1031 exchange, verify that any existing secondary dwelling on the parcel is properly permitted. An unpermitted DADU is now subject to mandatory removal, which could materially affect the property's value and your investment thesis.
Citation: HB 1345, Chapter 231, 2026 Laws. Effective June 11, 2026.
The Bigger Picture
These three bills share a common thread: Washington is systematically removing barriers to housing production. Commercial zones are opening to residential use. Condominiums are becoming viable to build again. Rural lots can support a second dwelling.
For 1031 exchangers, the net effect is more replacement property options. More inventory means more flexibility in structuring your exchange — whether you are looking for a value-add conversion project, a new-construction condo, or a rural property with development potential.
The one thing these laws do not change is the timeline. You still have 45 days to identify your replacement property and 180 days to close. If you are planning to sell investment property in Washington this year, the time to talk to a qualified intermediary is before you sign the listing agreement — not at closing.
Olympic Exchange Accommodators is an attorney-led qualified intermediary based in Tacoma, serving property owners throughout Washington State and nationwide. There is no consultation fee to discuss whether a tax-deferred like-kind exchange makes sense for your situation. We facilitate forward, reverse, and improvement exchanges for investors in Pierce County, the Puget Sound region, Central Washington, and beyond.
Jeff Helsdon is a Certified Exchange Specialist® who has been facilitating tax-deferred like-kind exchanges since 1990. He is the principal of Olympic Exchange Accommodators in Tacoma, Washington, serving investors throughout Pierce County, the Puget Sound region, and Washington State.
Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. Every exchange has unique facts and circumstances. Consult your own attorney, CPA, and financial advisor before making decisions about your 1031 exchange.
