Definition
1031 Exchange
Also called: like-kind exchange
A 1031 exchange lets an investor defer capital gains tax by selling an investment property and reinvesting the proceeds into another investment property under strict IRS rules — including identifying replacements within 45 days and closing within 180.
The rules are unforgiving: the property must be held for investment (not a personal residence), a qualified intermediary must hold the proceeds (touching the money disqualifies the exchange), and the deadlines run from the sale's closing regardless of weekends or circumstances.
For tired landlords, a 1031 is the classic exit that isn't an exit — deferring tax by trading into a less demanding asset. Heirs usually have less need for it: the stepped-up basis often wipes out the gain a 1031 would have deferred.
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