A 1031 exchange occurs when you sell your income producing property & use the proceeds to purchase another (preferably more lucrative) income producing property. The purpose of this is to defer paying capital gains taxes on the gain of the property sold. There are specific, strict, timelines involved with a 1031 exchange in the state of California. If these deadlines cannot be met, you will end up paying a hefty tax on your capital gains. Therefore, it is crucial to work with a knowledgeable realtor who understands how an exchange works. You should also use a reliable 3rd party 1031 exchange company to handle to exchange of the funds as well as to identify the relinquished and replacement properties.