Pursuant to the Internal Revenue Code § 1031, an investor may sell a property without triggering capital gains by deferring taxes as long as the proceeds are reinvested timely. IRC § 1031(a)(1) provides:
“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”
1031 exchanges protect investors from capital gain taxes, and in turn, the exchange promotes growth and higher return on investment for the investor.