What is a 1031 Exchange?
What is a 1031 Exchange?
A 1031 Exchange (or “like-kind exchange”) allows real estate investors to defer their capital gains taxes (and other income taxes) when selling a property. Investors must reinvest in another qualified asset. The strategy comes from Section 1031 of the Internal Revenue Code.
In other words:
A 1031 exchange is an asset-swap that goes unrecognized for tax purposes.
(The IRS calls this “nonrecognition of gain or loss“)

Put into practice, a 1031 exchange is a powerful wealth-building tool. And it’s a key weapon in any real estate investor’s arsenal.
Here’s an example of what we mean:
Let’s say you sell a rental property at a gain.
In a normal sale with $200,000 gain, you would owe $40,000 or more in capital gains tax.
But with a 1031, you allow your wealth to snowball.
Money that otherwise would have gone to the IRS as taxes now goes as down payment on your new property.
So you can now afford
- larger properties
- higher income properties
- more properties
- to switch to a different class or sector
After just one 1031 exchange, the extra money you keep makes a big difference.
And allows much greater return on your cash.
Over an investing career, this strategy can completely transform your real estate portfolio.
As our founder and attorney Steven W. Hickox puts it:
Key takeaway: The 1031 “like-kind” exchange allows real estate investors to delay taxes and boost returns, especially over the long term.