What's the Difference Between a 1031 Exchange and Selling and Reinvesting?

A 1031 exchange and a straightforward sale-and-reinvestment are both ways to move money from one investment property to another, but the tax consequences are very different. When you sell a property outright and reinvest the proceeds, you owe capital gains tax on any profit at the time of sale — potentially 15% to 20% plus depreciation recapture. A 1031 exchange (also called a like-kind exchange) lets you defer those taxes by rolling the proceeds directly into a similar investment property, as long as you follow strict IRS rules. You have 45 days after the sale to identify potential replacement properties and 180 days to close on one. The deferred taxes eventually come due when you sell the replacement property without doing another exchange, but many investors use 1031 exchanges repeatedly to keep deferring taxes throughout their lifetime.