A 1031 exchange, named for Section 1031 of the U.S. tax code, allows a real estate investor to defer paying capital gains taxes when selling an investment property, provided they reinvest the proceeds into another like-kind investment property.
The rules are strict and time-sensitive. The investor generally must identify replacement property within 45 days of the sale and complete the purchase within 180 days, and a qualified intermediary must hold the proceeds so the seller never takes possession of the cash.
By deferring taxes, a 1031 exchange lets investors keep more capital working and trade up over time. It applies to investment or business real estate, not primary residences, and the rules are complex, so investors typically work with tax and legal professionals.