1031 exchange means: A taxpayer's deferral of recognition of capital gains and related federal income tax liability on the exchange of certain types of property, under Internal Revenue Code section 1031.. There is no real cause for parental concern; it is descriptive vocabulary rather than risky behaviour. If your teen uses it, context will usually make the intent clear. A short, curious question about where they heard it is usually all that is needed to know whether to follow up.