1031 Exchange (Like-Kind Exchange)

Category: finance

A tax-deferral strategy allowing an investor to defer capital gains taxes when selling an investment property and reinvesting the proceeds into a new property.

The 1031 is the "tax-free upgrade." Under Section 1031 of the IRS Code, if you sell a $1M property and use all the cash to buy a $2M property within 180 days, you pay zero capital gains tax on the sale. It is the primary wealth-building tool in real estate.

Common Examples

• The investor executed a 1031 exchange to swap their management-intensive apartment complex for a passive NNN retail building.
• Missing the strict 45-day identification window will completely invalidate a 1031 exchange, triggering a massive capital gains tax bill.