When selling real estate, the laws says you must pay income taxes on the gain from the sale of property. But there�s an exception to this rule, known as the 1031 exchange, that lets you trade existing business or investment properties for other properties of "like kind," and defer capital gains tax until you sell the replacement property.

Houston Financial Advisors Richard J. Alphonso, JD, CPA/PFS, M.S.T, and Anita S. Frank, CPA, offer these points to keep in mind when considering this tax-deferral technique:

• To avoid taxable gain, you must buy a property of greater or equal value.
• When like properties are not exchanged simultaneously, the proceeds from the sale must go toward the purchase of the replacement property.
• If you don�t arrange a simultaneous exchange of property, you have 45 days from the date of the closing to determine a list of the properties you want to buy, and 180 days to close the purchase of one of the properties on the list.
• If you exchange property with a relative or between you and a partnership or corporation in which you own more than a 50% interest, neither party may dispose of the property for 2 years after the exchange.
• The title holder of the old property must remain the title holder of the replacement property.

For more on 1031 exchanges, consult the advice of your financial or tax advisor.