Basics 1. What is a 1031 tax-deferred exchange?
In a usual transaction, the property owner is taxed on any gain realized from the sale. But, through a Section 1031 Exchange, the tax on the gain is deferred until some future date. Section 1031 of the Internal Revenue Code provides that no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business, or for investment. A tax-Deferred Exchange is a method by which a property owner trades one or more Relinquished Property for one or more Replacement Properties of Like-Kind, while deferring the payment of federal income taxes and some state taxes on the transaction.
