What is a 1031 exchange?

In real estate, "exchanges" usually refer to a specific type of transaction called a 1031 exchange. This tax-deferment strategy allows property owners to sell their existing investment property and reinvest the proceeds in a new property, all while deferring capital gains taxes. Under this strategy, the seller has a certain amount of time to identify and purchase a replacement property, and there are strict rules that must be followed to ensure that the transaction qualifies for tax deferral. Despite the complexity of the process, 1031 exchanges have become a popular strategy for real estate investors looking to maximize their returns and minimize their tax liabilities.