1031 Exchange
A 1031 exchange — named for Section 1031 of the Internal Revenue Code — lets a real estate investor defer capital gains tax by selling an investment property and reinvesting the proceeds into another like-kind property, under strict IRS deadlines and with the funds held by a qualified intermediary.
The rules that make or break it
Four requirements do most of the work: the replacement property must be identified within 45 days of the sale and closed within 180 days; the replacement must be of equal or greater value (and carry equal or greater debt) to fully defer the gain; the proceeds must be held by a qualified intermediary — the seller can never touch the money; and since the 2018 tax law, only real property held for investment or business use qualifies. Primary residences are excluded (they have their own exclusion under a different section).
Why prospectors care
Two reasons. A buyer inside a 1031 window is on a legal clock — 45 days to name a target — which makes them among the most motivated buyers in any market. And on the seller side, the exchange is the escape hatch for long-tenure landlords who feel locked in by capital gains and depreciation recapture: "you don't have to pay the tax to exit this property" is often the sentence that turns a tired landlord into a listing.
This is a definition, not tax advice — exchanges live and die on details a CPA or qualified intermediary should confirm.