What is a 1031 Exchange?

Section 1031 of the Internal Revenue Code provides that no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged for property of like-kind to be used either for productive use in a trade or business or for investment.

Section 1031 exchanges are not really exchanges in the context of two-party barter. Exchanges are the sale of an investment or business use asset followed by the acquisition of another within 180 days and linked together by paperwork. Exchanges date back to 1921. In 1991, the “final” regulations were issued and since then little has changed.