WHAT IS A 1031 EXCHANGE? | The Basics for Real Estate Investors | Rules and Strategies

What Is a 1031 Exchange? How Savvy Investors Use 1031s to Defer Capital Gains and Build Wealth? A 1031 exchange is a swap of one real estate investment property for another that allows capital gains taxes to be deferred. The term—which gets its name from Section 1031 of the Internal Revenue Code (IRC)—is bandied about by real estate agents, title companies, investors, and more. Some people even insist on making it into a verb, as in, “Let’s 1031 that building for another.” IRC Section 1031 has many moving parts that real estate investors must understand before attempting its use. An exchange can only be made with like-kind properties, and Internal Revenue Service (IRS) rules limit its use with vacation properties. There are also tax implications and time frames that may be problematic. If you are considering a 1031 exchange—or are just curious—here is what you should know about the rules.

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