A tax-deferred exchange represents a simple, strategic method for selling one qualifying property and the subsequent acquisition of another qualifying property within a specific time frame.
Although the logistics of selling one property and buying another are virtually identical to any standard sale and purchase scenario, an exchange is different because the entire transaction is memorialized as an exchange and not a taxable sale. And it is this distinction between exchanging and not simply selling and buying, which ultimately allows the taxpayer to qualify for deferred gain treatment. So essentially, sales are taxable and exchanges are not.
In order to complete a qualifying 1031 exchange there are a few key rules to remeber and you must utilize the services of a Qualified Intermediary to ensure your documentation is memorialized correctly and your exchange proceeds are handled appropriately. To explore the rules of exchanging see the tutorials in the sidebar.