A 1031 exchange is a powerful tool used by real estate investors to defer capital gains taxes when they sell a property. It allows the investor to exchange one investment property for another of like-kind, in order to defer the capital gains taxes that would otherwise be due on the sale. In order to take advantage of this, there are certain 1031 exchange requirements that must be met.

1. The exchange cannot be done with a personal home or other personal belongings.

The exchange property must be used in a trade or business or held for investment purposes. This can include real estate, vehicles, boats, artwork, and other tangible property.

2. The property must be identified within 45 days

The investor must identify the property they are purchasing to replace the first property within 45 days of the sale of the first property.

3. The total timeline for the exchange is 180 days

The exchange must be completed within 180 days of the sale of the first property, or the due date of the investor's tax return for the year of the sale—whichever is earlier. If the exchange cannot be completed on time, a request for an extension can be filed.

4. The investor must use a qualified intermediary

This is a third-party entity that holds the proceeds from the sale of the first property and facilitates the exchange into the new property. 

5. The investor must receive the property in a simultaneous exchange

 The funds from the sale of the first property are held by the intermediary until the purchase of the second property can take place. 

 6.. The investor must reinvest all of the proceeds from the sale

Any proceeds kept by the investor will be considered taxable income.

7. The investor cannot receive cash or other non-like-kind property. 

Any cash received by the investor will be considered taxable income.

8. The exchange must be for items of the same type and of equal value.

If the exchange results in a gain or loss of finances, it must be reported as such on their taxes.

These are the basic requirements for a 1031 exchange. If the requirements are not met, the exchange will not qualify for a tax deferral, and the investor will be liable for the capital gains taxes due on the sale of the property. For this reason, it is important to understand the rules of a 1031 exchange before attempting one.