Definition of 1031 tax-free exchange

"like-kind" exchange of business or investment property that is free of capital gain taxation under Section 1031 of the Internal Revenue Code. Properties held for rental income, for business purposes, as investment property, or as vacation homes may be exchanged for qualifying like-kind property (a piece of land and a building can be traded because both are real estate), provided certain conditions are met: (1) the seller must identify the replacement property within 45 days after escrow on the old property and (2) the seller must take title to the new property within the earlier of 180 days of the old property's close of escrow or the seller's tax deadline. To the extent boot, meaning cash or additional property, is part of the exchange, the transaction is taxable.