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.

Are 1031 exchanges taxable?

Broadly stated, a 1031 exchange (also called a like-kind exchange or a Starker exchange) is a swap of one investment property for another. Most swaps are taxable as sales, although if yours meets the requirements of 1031, you’ll either have no tax or limited tax due at the time of the exchange.

How do I qualify for a section 1031 exchange?

To qualify as a Section 1031 exchange, a deferred exchange must be distinguished from the case of a taxpayer simply selling one property and using the proceeds to purchase another property (which is a taxable transaction).