A 1031 exchange, also known as a like-kind exchange, is a tax-deferral strategy that allows an individual or business to sell a property and use the proceeds to purchase a similar property without paying capital gains tax on the sale. To qualify for a 1031 exchange, the following rules must be followed:
If the IRS rules are properly followed, the capital gains tax on the sale of the first property can be deferred until the replacement property is sold. It's important to note that a 1031 exchange is a complex tax strategy and should be carefully planned with the help of a tax professional.
Here is a simple financial example of a 1031 like-kind exchange: