What is a Property Exchange?

Also known as a 1031 exchange, a property exchange is a mechanism that makes it possible to purchase and sell various types of property that are of like kind. As part of the function of this like kind exchange, it is possible to ease the tax burden associated with the transaction. The provisions for a property exchange are defined in the United States by Section 1031 of the Internal Revenue Service code. Because a property exchange makes it possible to defer some of the tax consequences associated with the transaction, the exchange can help to stimulate the economy by promoting reinvestment of any profits realized from the buying and selling of the properties. The profits or equity gained from the sale of property are used as part of the purchase of the similar property, thus offsetting the gain and lowering the tax burden. In the best of circumstances, it is possible to reinvest the full amount of the equity and thus create a situation where there is no taxable gain from the ...  more