First, you must understand what kind of transaction qualifies under Section 1031 of the IRS code. The key here is the term "like kind." This doesn't mean that land can only be exchanged for land or that an apartment building can only be exchanged for another apartment building. What it does mean is that the investment or commercial property must be exchanged for another property that will be held for use in a productive business or investment capacity. In fact, you can use the proceeds from several property sales to buy a single property. Or you can exchange your current property for multiple new properties. Just make sure the fair market value of the new properties doesn't go above 200 percent of the value of your old property. For more information on what kind of property swap will qualify, search the term "section 1031" at the IRS's website (http://www.irs.gov/index.html).

Once you've done this, it's time to list the property you own with a real estate broker. You should make sure that the listing agreement specifically states that you intend to use the property to complete a 1031 exchange. If you do a FSBO (for sale by owner) transaction, make sure the sales contract contains the required legal terms.

The next step is a typical real estate transaction. Once an interested buyer makes an offer, you can accept it or counter it. When you're talking or bargaining with the potential buyer, make sure everyone involved is clear that you will be doing a section 1031 property exchange.

Once you've agreed on terms and price, you'll accept the offer and the sale will proceed. At closing, your funds will be transferred to a third party. This facilitator will hold the money in an escrow account until you're ready to purchase the new property. The facilitator will also prepare all the documents for a 1031 exchange and will work with the escrow company during the first phase of the process. All parties involved must sign the exchange agreement, and all earnest money must be deposited with the title company before closing the escrow.

Within 45 days of closing, you must find the replacement property or properties and send a written list of these properties to your facilitator. The closing date on the property must be within 180 of the sale of the first property. There is no wiggle room on these deadlines, so don't blow your tax deferred sale by being tardy on any of these deadlines! During the purchase of the new property or properties, you must again make sure everyone concerned knows the deal is part of a 1031 exchange.

During the second phase of the exchange, you'll open an escrow account on the new property, and the facilitator will begin preparing all the needed documents. This third party facilitator will hold your earnest money and any other funds in the escrow account until the this phase is completed.

A 1031 Exchange involves many other factors and details. For instance, there is a timeline for when you can claim the exchange on your income taxes. Because the process is complicated, you should check with a financial advisor and an attorney to make sure your deal complies with the tax code throughout the process.