THE 1031 TAX DEFERRED EXCHANGE The 1031 tax deferred exchange, authorized by Section 1031of the Internal Revenue Code, is a method that allows a property owner to trade one investment property for another without incurring capital gains taxes on the transaction. These taxes are deferred until the newly acquired property is sold. The IRS regulations stipulate that the property owner can not control the money during the exchange transaction, and requires that the property owner use the services of a Qualified Intermediary. The Qualified Intermediary prepares the necessary exchange documents that are signed at the first closing, and receives the proceeds from the sale. The Qualified Intermediary holds these proceeds until the property owner is ready to purchase a replacement property.