In the simplest terms, a §1031 Exchange is a “swap” of one business or investment property for another.
A §1031 Exchange – also commonly called a Like-Kind (a/k/a Starker or Deferred) Exchange – refers to
Section 1031 of the Internal Revenue Code that provides for the tax-deferred exchange of real and personal
property.
In the simplest terms, a §1031 Exchange is a “swap” (sale and then purchase) of one business or investment
property for another. Although typically any gains from a property sold is taxable, if done within the guidelines
of a §1031 Exchange, the person selling the property will have either no tax or limited tax due at the
time of the §1031 Exchange.
In eff ect, the property owner can change his investment (such as selling a shopping center and buying an
apartment building) without recognizing a capital gains. That allows the investment to continue to grow tax
deferred. There’s no limit on how many times a property owner can do a §1031 Exchange. A property owner
can roll over the gain from one piece of investment real estate to another to another. Even if there is a profit
on each swap, as long as another property is purchased equal to or greater than what was sold, the tax is
deferred (avoided) until the property is actually sold and the profit is pocketed.
