Full Definition
A Section 1031 like-kind exchange allows real estate investors to defer capital gains and depreciation recapture taxes on the sale of investment property — provided the proceeds are reinvested in like-kind replacement property within strict IRS timelines. Key deadlines: 45 days to identify replacement property; 180 days to close. A qualified intermediary must hold the funds.
Why It Matters
1031 exchanges are one of the most powerful wealth-building tools in real estate — they allow indefinite tax deferral when chained together.
Related Terms
Qualified Intermediary (QI)
IRS-required neutral third party that holds 1031 exchange proceeds and facilitates the transaction.
Boot
Non-like-kind property or cash received in a 1031 exchange. Boot is taxable.
Opportunity Zone
Federally-designated economically distressed area where investments via Qualified Opportunity Funds receive tax incentives including deferred and tax-free gains.
Capital Gains Tax
Federal tax on the profit from selling an investment asset. Long-term rate is 0-20% plus 3.8% NIIT for most real estate investors.