IRS 1031 Tax Exchange Rule Section 1031 Exchange refers to "like-kind" exchanges of property. Normally, an owner is taxed on a gain from a sale, but in a "like-kind" exchange, the tax is deferred. This IRS 1031 tax exchange rule recognizes that while the form of property may have changed, the actual investment is the same. For instance, a parking lot may be exchanged for a piece of timber land. The exchange is tax deferred, not tax free. When the property is sold outright, any gain from the earlier exchange plus the gain on the later sale is taxed. Property must be exchanged for property, you cannot sell for cash and then reinvest in another property. Any property must have a productive use and can include real property or personal property (although you cannot exchange your primary residence). You also must have a qualified intermediary handle the exchange. This person cannot be the taxpayer or anyone with a close relationship to the taxpayer. The IRS Section 1031 Exchange rules also have time limits to complete the exchange if you want to take advantage of the tax deferment. Not all properties qualify for the IRS Section 1031 Exchange rule. Please see your nearest Liberty office for more information.