A more thorough explanation:

Relinquished property refers to the real property that an investor sells in a 1031 exchange to defer recognition of gains from the sale as taxable income. This means that the investor can sell their property and use the proceeds to purchase a new property without paying taxes on the gains from the sale.

According to § 1031(a)(3) of the Internal Revenue Code, the property must be identified, and the exchange must be completed within 180 days after the transfer of the exchanged property. If the property received in a 1031 exchange is not identified as property to be received in the exchange within 45 days after the transfer of the relinquished property, it is not treated as like-kind property.

John owns a rental property that he wants to sell for $500,000. He purchased the property for $300,000, so he has a capital gain of $200,000. If he were to sell the property without a 1031 exchange, he would owe taxes on the $200,000 gain.

Instead, John decides to do a 1031 exchange. He sells his rental property for $500,000 and uses the proceeds to purchase a new rental property for $600,000. Because he completed the exchange within 180 days and identified the new property within 45 days, he can defer paying taxes on the $200,000 gain.

By using a 1031 exchange, John was able to avoid paying taxes on the gain from the sale of his rental property and reinvest the proceeds into a new property.