Under Section 1031 of the United States Internal Revenue Code (26 U.S.C. § 1031), the exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due.
A recent Forbes articles states that a 1031 exchange (also called a like-kind exchange or a Starker) is a swap of one business or investment asset for another. Although most swaps are taxable as sales, with a 1031, there will be no tax or limited tax due at the time of the exchange.
This allows the form of the investment to be changed without (as the IRS sees it) cashing out or recognizing a capital gain. That allows the investment to continue to grow tax deferred.
The new property must be found within 45 days of old property escrow close. The new property escrow must close within 180 days after the sale of the old property.
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