What Is a 1031 Exchange?

Understanding 1031 Exchanges

A 1031 Exchange, or a Like Kind Exchange, as it implies, allows you to defer paying capital gains tax on the sale of a business or investment property by reinvesting the proceeds in other real estate. A Like Kind Exchange is defined by Internal Revenue Code (IRC) Section 1031. 1031 Exchanges are also referred to colloquially as the following:

- Delayed Exchange

- Section 1031 Exchange

- Like-Kind Exchange

- Tax-Free Exchange

- Real Estate Exchange

- Real Property Exchange

- Starker Exchange

- Tax Deferred Exchange

- Real Estate Swap

- Forward Exchange

- Simultaneous Exchange

A 1031 Tax Deferred Exchange offers taxpayers one of the last great opportunities to build wealth and save taxes. By completing a 1031 Exchange, the Taxpayer (“Exchanger”) can dispose of investment or business-use assets, acquire Replacement Property and defer the tax that would ordinarily be due upon the sale.

1031 Exchanges have been part of the tax code since 1921. Section 1031 has permitted a taxpayer to exchange business-use or investment assets for other like-kind business use or investment assets without recognizing taxable gain on the sale of the old assets. The taxes which otherwise would have been due from the sale are thus deferred.