The Mechanics of 1031 Exchanges in Real Estate Investing
The Mechanics of 1031 Exchanges in Real Estate Investing Real estate investors seeking to build wealth and defer taxes often turn to the powerful strategy of a 1031 exchange. Named after Section 1031 of the Internal Revenue Code, this tax-deferral tool allows investors to sell one investment property and reinvest the proceeds into another “like-kind” property—without immediately paying capital gains taxes. This article will walk you through how 1031 exchanges work, their benefits, key rules, and what to watch out for. Table of Contents What Is a 1031 Exchange? Key Rules and Requirements Benefits of 1031 Exchanges Common Pitfalls and Risks How to Execute a 1031 Exchange What Is a 1031 Exchange? A 1031 exchange allows real estate investors to defer paying capital gains taxes on the sale of an investment property if the proceeds are reinvested into another qualifying property. This strategy preserves capital, allowing investors to scale up to larger or mo...