1031 exchange — defer the tax forever (or until death)
IRC §1031 lets you defer all capital gains and depreciation recapture when you sell investment property — if you reinvest the entire proceeds into another "like-kind" property within strict timelines: 45 days to identify, 180 days to close.
The mechanics: you use a Qualified Intermediary (QI) to hold the proceeds — you can never touch them yourself. From the day of the sale, you have 45 days to formally identify replacement candidates (up to 3 properties, or more under specific rules) and 180 days to close on one. Miss either deadline and the entire transaction becomes taxable.
The strategic value: combined with the stepped-up basis at death, 1031s become a "trade up forever, hold until death" strategy. You can roll equity through decades of properties, deferring all gain, and when you die your heirs get a basis step-up that eliminates the embedded gain entirely. This is the single most powerful multi-generational real estate tax structure in US law.
State conformity matters: Pennsylvania, for example, does not fully recognize 1031 at the state level. Always verify with a CPA familiar with both your state and the state where the new property sits.