The capital gains tax deferral Section 1031 provides to the taxpayer might, at first, seem to represent a kind of gift from the US government, but it is, in reality, closer to an interest free loan, because there is an expectation that the taxpayer will “repay” the money acquired by way of the tax deferral by paying capital gains taxes upon the eventual sale

of a replacement property. Additionally, this “interest-free loan” may be kept indefinitely; an investor can conduct any number of exchanges before finally deciding to sell outright, at which point the investor must pay capital gains taxes.

1031 exchanges aren’t just for land and buildings, either. You can conduct an exchange on any type of real estate held for investment in your trade or business, and some types of personal property as well, from cranes or backhoes to an aircraft or collector car. As a matter of fact, 1031 exchanges are especially advantageous to those who have money in antiques or collectibles such as classic cars, in light greater capital gains liability on the sale of these items.

You cannot, however, make an exchange on things like shares of stock or interest gained from an REIT.