A 1031 exchange, named for Section 1031 of the tax code, allows an investor to sell an investment or business property and defer capital gains tax by reinvesting the proceeds into one or more like-kind replacement properties. The deferral is not automatic. It requires following strict timelines for identifying and closing on replacement property, using a qualified intermediary to hold sale proceeds, and generally reinvesting an amount equal to or greater than the value and equity of the property sold.
The appeal of a 1031 exchange lies in compounding: by deferring tax rather than paying it at each sale, an investor keeps more capital working across multiple properties over time, and that deferral can, in certain circumstances, extend all the way to a step-up in basis at death. Structures like Delaware Statutory Trusts have also made 1031 exchanges accessible to investors seeking passive replacement property. For a full walkthrough of the mechanics and deadlines, see this 1031 exchange guide.
Further reading: Understanding 1031 Exchanges: A Guide for Accredited Real Estate Investors
ACCESS
