IRS code 1031 allows the taxpayer to defer capital gains tax and use the proceeds from the sale of an investment property to purchase one (or more!) "like-kind" property. When the exchange meets the criteria for the IRS code 1031, taxes are deferred until sometime in the future.

• Like-Kind Exchanges - Real Estate Tax Tips
  Generally, if you exchange business or investment property solely for business or investment property of a like-kind, no gain or loss is recognized under Internal Revenue Code Section 1031. If, as part of the exchange, you also receive other (not like-kind) property or money, gain is recognized to the extent of the other property and money received, but a loss is not recognized.
  Section 1031 does not apply to exchanges of inventory, stocks, bonds, notes, other securities or evidence of indebtedness, or certain other assets.
• Like-Kind Property
  Properties are of like-kind, if they are of the same nature or character, even if they differ in grade or quality. Personal properties of a like class are like-kind properties. However, livestock of different sexes are not like-kind properties. Also, personal property used predominantly in the United States and personal property used predominantly outside the United States are not like-kind properties.
  Real properties generally are of like-kind, regardless of whether the properties are improved or unimproved. However, real property in the United States and real property outside the United States are not like-kind properties.
• Additional Resources
  Internal Revenue Service