A 1031 Exchange is an exchange of property you can do when trading one investment property for another, and allows you to defer any gain you would have had upon the sale of the first investment, and roll it forward into the new investment.
But - the key here is, it has to be an INVESTMENT property - a primary residence or a vacation home are not eligible for a 1031 Exchange. If you try and do this - that gain is taxable.
Additionally, there are strict timelines associated with it - the property with which the exchange is occurring has to be identified within 45 days of the sale of the first property, AND you have to close within 180 days of the sale of the first property. If you don’t - yep, now that gain is taxable.
Last - you need to use a QUALIFIED intermediary - meaning the funds from closing on the first property that are going toward the second property, are not allowed to touch the taxpayer's hands. If they do? You guessed it - that’s now a taxable gain.
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