A 1031 exchange is the swapping of a real estate investment property for another like-kind property. This allows for the capital gains taxes to be deferred due to the equity from the original sale being rolled into the purchase of the exchange property, thus freeing up more capital for the investor.
Instead of immediately paying capital gains on the sale of a property, many investors prefer to defer that payment by purchasing a new property with the proceeds. This is commonly referred to as a 1031 exchange, in reference to the section of U.S. tax code that defines it. There are specific rules and timelines related to a 1031 exchange, and it is important to have an experienced and knowledgeable specialist handling this process.