Using a 1031 exchange or the tax-deferred exchange, as defined in Section 1031 of the Internal Revenue Code of 1986, offers accredited investors a possibility to build wealth and save taxes.

By doing an exchange, the investor can sell the investment property, acquiring "Like-kind" investment properties using all of the equity and deferring the capital gain tax that would ordinarily be paid.
There are many requirements in order to defer the capital gain tax, including but not limited to:

1. The Investor must acquire "like kind" replacement property.
2. The Investor cannot receive cash or other benefits (unless the Investor pays capital gain taxes on this money).
3. Funds must be sent to an intermediary.

The tax code states, "No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business, or for investment purposes if such property is exchanged solely for property of like-kind, which is to be held for other productive use in trade or business or for investment purposes.

There are five diverse types of exchanges that we can identify according to the regulation such as:

Delayed exchange that is the most common type of exchange an occurs when there is a time gap between the transfer of the Relinquished Property and the acquisition of the Replacement Property. A Delayed Exchange is subject to strict time limits, which are set forth in the Treasury Regulations.

Simultaneous Exchange is the exchange of the relinquished property for the replacement property occurs at the same time.

Reverse Exchange, sometimes called a "parking arrangement," occurs when a taxpayer acquires a Replacement Property before disposing of their Relinquished Property. The IRS has offered a safe harbor for reverse exchanges, as outlined in Rev. Proc. 2000-37, effective September 15, 2000.

Personal Property Exchange. Personal property can also be exchanged for other personal property of like-kind or like-class.

Build-to-Suit (Improvement or Construction) Exchange. This technique allows the taxpayer to build on, or make improvements to, the replacement property, using the exchange proceeds.

There are many benefits in doing a 1031 exchange, primarily the ability to deferred capital gains.

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