What Is a 1031 Exchange?

By Kristi Waterworth – Updated Feb 22, 2025 at 10:44 AM

Key Points

A 1031 exchange lets you swap investment properties tax-free, enhancing your investment funds.
Only "like-kind" investment properties qualify for 1031 exchanges, not personal residences.
Delayed 1031 exchanges allow property swaps when immediate matches aren't available.

Real estate investors have many vehicles for reducing their tax bills with regard to their properties. A 1031 exchange is just one of these tools, but it must be used carefully.

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Two model houses sitting atop blue arrows pointing in a circular exchange motion. — Image source: Getty Images.

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Real Estate Due Diligence Checklist

This real estate due diligence checklist will help investors complete a thorough evaluation of a property.

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A 1031 exchange is fairly difficult to use on large-scale assets, like investment-grade real estate portfolios. But if you have three or four rental properties and are looking to mix things up a bit, a 1031 exchange may be a good tool for you.

For example, you could trade properties that you've fully depreciated for new properties of a similar value to regain your tax benefit. There are many reasons small-scale real estate investors might utilize a 1031 exchange -- it's just another tool in your long-term wealth-building arsenal.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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