What is a 1031 Exchange?

A 1031 exchange, also known as a "like-kind exchange," is a tax-deferred exchange of investment or business property. It allows investors to sell a property, reinvest the proceeds into a similar property, and defer the capital gains tax that would normally be due on the sale.

To qualify for a 1031 exchange, the properties involved must be "like-kind." This means that they must be used for the same type of business or investment, such as rental properties or commercial buildings. The properties do not have to be identical, but they must be similar in nature and use.

There are a few key requirements for a 1031 exchange to be valid:

The exchange must be for investment or business property, not personal property.
The exchange must be made for "like-kind" properties.
The exchange must be made on a "deferred" basis, meaning that the capital gains tax on the sale is deferred until the new property is sold.
The exchange must be completed within specific time frames, as determined by the IRS.
1031 exchanges can be a useful tool for investors looking to sell a property and reinvest the proceeds into a similar property, as it allows them to defer the capital gains tax that would normally be due on the sale. However, it's important to be aware of the requirements and restrictions of a 1031 exchange, and to seek legal and financial advice before proceeding with an exchange.