Knowing and understanding the rules and regulations of 1031 exchange is very important.
This is true especially if you are planning to enter the world of buying and selling business related properties.
Since through 1031 exchange, you can save a lot of money from the payment of capital gain taxes.
The name 1031 exchanges come from the section 1031 of the United States Tax Code.
The section which states that you can defer your payment of capital gain taxes if and only if the properties involved in the exchange are used for business purpose or is used as an investment.
And so because of this restriction, you cannot use 1031 exchange when it comes to the buying and selling of residential properties.
Usually, when the exchange is between two properties that has the same purpose or simply "like kind" properties, the money gained or lost isn't recognized.
However, if the exchange is between two not "like kind" properties, then the gain that is attributed to that share of the exchange is recognized.
Then again, the lost isn't recognized.
One aspect that you must never forget about 1031 tax exchange is that you can only use the money that you obtained from selling a property to purchase another property that you will use for business purposes.
Another thing is that you must have an authorized intermediary.
This intermediary will be the one to handle money matters.
He or she will also be the one to make sure that the exchange is properly done.