The term 1031 Exchange refers to section 1031 of the IRS Code which allows investors to “defer” payment on capital gains taxes, specifically those related to the sale of investment properties, so long as the profit gained from the sale of an investment property is used for the purchase of a “like-kind” property.

 

Although it is possible a traditional 1031 exchange where one property is literally swapped for another like kind can happen, it is very unlikely that the owner of the property you are purchasing wants the property you are selling. Most exchanges occur as three party or delayed exchanges in which a middleman holds the funds after the sale of your property and is then used to purchase the new property.

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