What is a 1031 exchange?

Know the Rules 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.

What is Section 1031?

Section 1031 is a provision of the Internal Revenue Code (IRC) that allows a business or the owners of investment property to defer federal taxes on some exchanges of real estate. The provision is used by investors who are selling one property and reinvesting the proceeds in one or more other properties.

Can a 1031 exchange defer capital gains taxes?

A 1031 exchange, named after Section 1031 of the tax code, can defer capital gains taxes on a sale of investment property by reinvesting in similar property.