A very simple concept.
A 1031 exchange is defined by Section 1031 of the tax code. A 1031 Exchange is a transaction that permits real property investors to exchange/trade/relinquish their current business use or investment real property and replace/continue to own business use/investment property.
Since investors continue to own real property, they defer any gain they may have on the property they relinquished into the replacement real estate. Investors do not gain between transactions. If a gain is recognized, taxes are paid on it.
1031 exchanges are an important tax strategy that allows investors to keep their funds invested in the real estate market and continue to grow their investments without being limited by capital gains taxes.