A 1031 exchange is a provision in the United States tax code that allows real estate investors to defer paying capital gains taxes on the sale of investment properties if the proceeds are reinvested in a similar property. In other words, a 1031 exchange allows an investor to sell one investment property and use the proceeds to buy another investment property, without recognizing any capital gains tax on the sale.
To qualify for a 1031 exchange, the properties involved must be held for investment or business purposes, rather than personal use. Additionally, the investor must follow specific rules and deadlines, including identifying a replacement property within 45 days of the sale of the original property and closing on the replacement property within 180 days.
While a 1031 exchange can provide significant tax benefits to real estate investors, it is a complex transaction and should be done with the guidance of a tax professional or qualified intermediary.