1031 Exchange
As a general rule, immediate tax liability will not result from a like-kind exchange under Internal Revenue Code Section 1031. A like-kind exchange occurs when appreciated property held for productive use in a trade or business (or for investment) is exchanged for like-kind property that will be held for productive use in a trade or business (or for investment).
Tax-deferred exchanges may be useful if you have property that may be difficult to sell. Tax-deferred exchanges may also be useful if you are locked into a piece of property because the property has declined in value. In either of these instances, it may be easier to exchange the property with an investor who can wait to realize its potential. Tax-deferred exchanges will also be useful if you have highly appreciated property and cannot afford to pay the tax on the sale. Since it is possible to convert non-depreciable basis property (e.g. unimproved land) to depreciable basis property (e.g. improved real property), and vice versa, you should do some careful tax planning to determine when a like-kind exchange can and should be used.
There must be an exchange, rather than a sale and separate purchase.