A 1031 exchange — named for Section 1031 of the U.S. Internal Revenue Code — lets an investor defer capital-gains tax, and the tax on depreciation recapture, when they sell investment or business real estate and reinvest the proceeds into “like-kind” replacement property. The key word is defer: the tax isn’t erased, it carries forward into the basis of the new property until a future taxable sale.
The rules are strict and technical. The property generally has to be held for investment or business use rather than as a personal residence, the process usually runs through a qualified intermediary who holds the proceeds so you never take receipt of the cash, and there are firm time limits for identifying and closing on the replacement property. Missing a step can disqualify the whole exchange.
Because the mechanics and deadlines are specific, unforgiving, and subject to change, this is general education, not tax or legal advice — anyone considering a 1031 exchange should plan it in advance with a qualified tax professional and intermediary.
This is general educational information, not legal or tax advice. Rules vary by state and locality and change over time — check your local law and confirm specifics with a qualified professional.