A 1031 exchange defers the capital gains tax on an investment property sale, and yes, a plain sale of the replacement property later brings the deferred gain due. Named for that section of the IRS code, a 1031 lets a real estate investor roll the profit from selling one investment property into another like-kind investment property without paying capital gains tax at the time, as long as the replacement is of equal or greater value and the timing rules are followed exactly. Those rules are strict: - A short window to formally identify the replacement property, and a longer window to close on it. Confirm the current timelines with a 1031 specialist, because small mistakes blow up the exchange. - The funds must move through a qualified intermediary, never through your own bank account. The tax is deferred, never erased, so an ordinary cash sale of the replacement property triggers the built-up gain. The powerful part is that you can keep exchanging, deferring again and again over a lifetime. Hold real estate until death and the basis steps up for your heirs, who can inherit (and potentially sell) with the accumulated gain largely wiped out. Tax law here is intricate and it changes, so work with a 1031 specialist and a tax professional on the specifics of your situation.