A 1031 Exchange refers to a legal exchange that allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes.

Specifically, a 1031 Exchange is defined as:

"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 solely for property of like-kind which is to be held either for productive use in a trade or business or for investment."

The 1031 Exchange is very popular with real estate investors as it allows them to maximize their potential gains, while shielding those gains from high capital gaines taxes. However, the 1031 Exchange process is quite complicated, and it is recommended that a professional or firm provides guidance or advice on the transaction(s) in question.