1031 exchange also known as tax-deferred exchange represents a simple, strategic method for selling one existing qualifying property and acquiring another qualifying property within a specific time frame. Although the process of selling one property and buying another is identical to any standard sale and purchase scenario, an exchange is different because the entire transaction is memorialized as an exchange and not as a sale. This exchange is different because under this the properties are exchanged and not merely sold or bought, which ultimately allows the taxpayer to qualify for deferred gain treatment. Therefore we can say that sales are taxable, but exchanges are not.
The deferment of taxes is done within Section 1031 of the Internal Revenue Code where we can find the core essentials necessary for a successful exchange. Additionally, the exchange is always done within the like-kind properties.