1031 exchange allows a taxpayer who holds property for business, trade or investment, to defer the gain by exchanging it for another property.
So what happens is this – suppose you own an apartment building and you have a $1,000,000 gain in the apartment building.
You can sell that apartment building and buy another apartment building for equal or greater value.
And if it’s done properly through a 1031 exchange; you can defer the gain, meaning you don’t have to pay the tax on the gain, until you sell the second, known as the replacement property.