◈ GLOSSARY · REAL ESTATE
1031 Exchange.
A definition, in plain English — with the books that teach it.
Reviewed by ClearValue Editorial Team · Jun 27, 2026
◈ DEFINITION
What it means
Definition
A 1031 exchange lets you defer capital gains tax when you sell an investment property by rolling the proceeds into another like-kind investment property. The IRS rules are strict: you have 45 days to identify replacement properties and 180 days to close, and you must use a qualified intermediary to hold the cash. It defers tax — it does not erase it — unless you hold until death and your heirs get a stepped-up basis.
◈ IN PRACTICE
Example
You sell a rental for $500,000 with $200,000 of gain. Normally you'd owe roughly $40,000–$60,000 in federal capital gains and depreciation recapture tax. Through a 1031 into a $600,000 replacement property, you defer all of it and your new basis carries over.
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