Equity in the context of the 1031 exchange industry refers to the value that an investor has in a real estate property. In a 1031 exchange, this is essentially the net value of the property being “exchanged” or sold, once any liabilities such as a mortgage are subtracted.

Let’s say an investor owns a property that’s worth $500,000, and they still owe $200,000 on their mortgage. The investor’s equity in the property would be $300,000 ($500,000 – $200,000). If this property was sold as part of a 1031 exchange, this $300,000 equity could be used to invest in a new like-kind property.

It’s worth noting that one of the main reasons investors use a 1031 exchange is to defer capital gains tax. As long as the new property or properties are of equal or greater value, and the investor doesn’t receive “boot” (cash or other non-like kind property), the equity continues to be invested and the capital gains tax is deferred until a property is sold without reinvestment.