"...No gain or loss is recognized (taxed) if property held for productive use in a trade or business or for investment is exchanged solely for property of a like kind to be held either for productive use in a trade or business or for investment."  -Section 1031 of the Internal Revenue Code                                                                                                     A

A 1031 Exchange allows an investor or business owner to sell a piece of property and use the proceeds to buy another piece of property, also referred to as a replacement property, without being subject to capital gains taxation.  IRC Section 1031 has established three main criteria that must be met in order to qualify for a 1031 exchange.

1.  The first rule specifically states that the properties must be "like-kind" and held for a productive purpose in business or trade, as is the case in investment properties.

2.  The second rule establishes guidelines for the proceeds of the sale.  These proceeds must go through the hands of a "qualified intermediary" and the entire cash or monetary proceeds from the original sale has to be reinvested in a replacement property.  Any cash proceeds retained from the sale are taxable.

3.  The third rule establishes the timeline in which the exchange must be completed.  The 45 day indentification period begins on the date you close on the relinquished property and ends 45 days later.  This is the period of time which a party selling a property must identify other replacement properties that they wish to purchase.  It is not uncommon to select more than one property.  The 180 exchange period is the timeframe within which a party has sold a relinquished property must receive deeded ownership of the replacement property.