Generally, when a person sells or otherwise disposes of property, a gain or loss is “recognized” for tax purposes. This results in federal income tax consequences in

the year the property changes hands. Section 1031 of the Internal Revenue Code provides an exception to this general rule, making certain exchanges of property not immediately taxable. In a proper 1031 exchange, the taxpayer trades property that is currently held for investment or business use (including farming) in exchange for similar, or “likekind,” property. If the exchange complies with the requirements of § 1031, the taxpayer receives a deferral of the income tax consequences associated with the transfer.