What is a '1031 exchange' (Section 1031 of the Internal Revenue Code)?

1031 exchanges (named after Internal Revenue Code Section 1031) allow real estate investors to sell one investment property and buy another without immediately paying capital gains tax — the gain is deferred (not eliminated) and rolls forward into the new property's basis. Key requirements: (1) Investment or business property only — not personal residences; (2) Like-kind property — almost any real estate qualifies as like-kind to other real estate; cannot be exchanged for non-real estate (the 2017 Tax Act eliminated 1031 exchanges for personal property); (3) Identification period — 45 days from sale of relinquished property to identify replacement property in writing; (4) Exchange period — 180 days from sale to close on replacement property; (5) Qualified Intermediary — proceeds must be held by a QI; the taxpayer cannot constructively receive the funds; (6) Equal or greater value — to defer all gain, replacement property must be of equal or greater value and equity must be reinvested. Failed exchanges become taxable sales. Boot — cash or non-like-kind property received — is taxable to the extent received. Common variations: delayed exchange (most common), reverse exchange (buy first, sell within 180 days), build-to-suit. Powerful tool for portfolio building; brokers should know enough to identify opportunities and refer clients to qualified intermediaries and tax advisors.