The 1031 Exchange is an entirely legal and defensible way to defer capital gains taxes, and has been used thousands of times over the years. The overriding advantage of a 1031 Exchange lies in the ability to move equity from property to property without having to pay the capital gains taxes.A 1031 Exchange addendum functions to serve two primary goals. David A. King, Attorney at Law. 1416 Kingsley Avenue. This provision allows a taxpayer to enter into a contract for the transfer of the. A 1031 exchange is a contract in which one investment property is exchanged for another, allowing capital gains tax to be held off. In this video we go over reporting a 1031 exchange on Form 8824. Contracts Should be Assignable. You must report the exchange to the IRS on Form 8824.