Exchange

An exchange refers to a tax-deferred exchange of certain types of investment properties, as authorized under Section 1031 of the Internal Revenue Code. In a 1031 exchange, the owner of an investment property can sell it and use the proceeds to purchase another "like-kind" investment property, without triggering a tax liability on the capital gains from the sale.

To facilitate a 1031 exchange, the investor typically works with a qualified intermediary (QI) or exchange facilitator, who holds the funds from the sale of the original property and transfers them to the seller of the replacement property, ensuring that the exchange meets the IRS's requirements for tax deferral. The exchange industry consists of professionals and firms that provide various services related to 1031 exchanges, including QIs, attorneys, accountants, real estate brokers, and other intermediaries.