What is a '1031 exchange' (like-kind exchange)?

1031 EXCHANGE (LIKE-KIND EXCHANGE): Under IRS Section 1031, an investor can DEFER capital gains taxes by exchanging one investment or business-use real property for another 'like-kind' property, instead of selling (which would trigger taxable gain) and buying separately. KEY RULES: The properties must be held for INVESTMENT or business use (NOT a personal residence); 'LIKE-KIND' for real estate is broad (most real property qualifies — e.g., exchanging an apartment building for raw land or a commercial building); TIMELINE: 45 days to IDENTIFY replacement property, 180 days to CLOSE on it after selling the relinquished property; QUALIFIED INTERMEDIARY: A neutral third party must hold the proceeds (the investor can't take possession of the cash); BOOT: Any non-like-kind value received (cash, debt relief) is taxable; BENEFIT: Defers (not eliminates) capital gains tax, allowing the investor to reinvest the full proceeds and build wealth; the 1031 exchange is an important tax/investment concept for brokers advising investors — it defers capital gains by exchanging like-kind investment properties; tested on the national exam.