Definition
A tax-deferred exchange of like-kind real property, allowing investors to sell property and reinvest proceeds without paying capital gains taxes.
Where you’ll meet it
What's different about closing on land?
See it in Selling land · Step 5About this term
Section 1031 of the Internal Revenue Code allows investors to defer capital gains, depreciation recapture, and state income taxes indefinitely by exchanging into like-kind properties. After 2018, only real property qualifies (personal property no longer eligible). Proper execution with a qualified intermediary is critical; failing to follow strict timelines forfeits tax benefits.
Pro Tip
Understand income classification. Structure activities to minimize self-employment tax.
Example
An investor sells a rental house for $400,000 (basis $200,000, gain $200,000) and does 1031 exchange into investment property avoiding $60,000+ taxes