What is a 1031 Tax Deferred Exchange?


The term 1031 Exchange is defined under section 1031 of the IRS Code.

(1)    It is a legal, IRS sanctioned strategy that allows an investor to “defer” paying capital gains taxes on an investment property when it is sold, as long as another “like-kind property/properties” is purchased with the profit gained by the sale of the first property.

(2)    Both the property that you give up (the relinquished property) and the property you acquire (the replacement property) must be property held for productive use in a trade or business or for investment.  This is sometimes referred to by the IRS as the qualified purpose requirement.