Section 1031 of the Internal Revenue Code provides that no gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged for real property of like-kind to be used either for productive use in a trade or business or for investment.
Simply put, an exchange is the sale of a business use or investment property followed by the acquisition of another linked together by paperwork and completed within the set time periods. They have been part of the tax code since 1921 and are based on the continuity of investment, encourage reinvestment and are good for the economy.