What is 1031 Exchange?
A 1031 exchange is a tax strategy that lets an investor sell one investment property and reinvest the proceeds into another “like-kind” property while deferring capital gains tax. Strict IRS timelines and rules apply, including identifying the replacement property within 45 days. It does not apply to a personal residence, so professional tax and legal guidance is essential.
Example: An investor sells a rental at a large gain and, by reinvesting into another rental within the 1031 timelines, defers the capital gains tax rather than paying it now.