Under Section 1031 of the Internal Revenue Code, like-kind property used in a trade or business or held as an investment can be exchanged tax-deferred.  Under a fully qualified Section 1031 exchange, real estate is traded for other like-kind property.  All capital gains taxes are deferred until the newly acquired real estate is disposed of in a taxable transaction.  The underlying philosophy behind the deferral of capital gains taxes is that taxation should not occur as long as the original investment remains intact in the form of (like-kind) real estate (like-kind refers to real property as such, rather than the quality or quantity of property).