A 1031 exchange is a strategy under IRC Section 1031 that defers capital gains tax when sale proceeds are reinvested in like-kind real property.
In practice, a 1031 exchange is a sequence of strict steps rather than a single transaction. The investor sells the relinquished property, a qualified intermediary holds the proceeds, and the investor must identify and close on replacement property within fixed deadlines. To defer all of the tax, the replacement property generally needs to be equal or greater in value, and all net proceeds must be reinvested. For NNN investors the strategy pairs naturally with passive, long-term leased real estate, but it is a tax matter, so confirm the details with your tax advisor and intermediary.