A 1031 Tax-Deferred Exchange allows you to preserve the value of your property investment and can be a powerful tool if administered correctly. A tax-deferred exchange under Section 1031 of the Internal Revenue Code allows the real estate investor to sell an investment property and acquire another "like-kind" property while deferring federal capital gains taxes until later. This lets you reinvest sale proceeds that would otherwise be paid to the government as capital gains taxes.