Capital gains taxes are a fact of life for investors. The government participates in your success by taking out a portion for itself when the capital gains, or profits, are realized (usually at the sale of assets, such as real estate).
The good news is Section 1031 of the IRS tax code allows investors to defer the capital gains taxes paid. These savings will then be used to further increase the scope of their next investment, commonly referred to as the "upleg".
In order to qualify for a Section 1031 Tax Deferred Exchange, the property being exchanged must be of "like kind" and owned for business or income production purposes. Once a property is sold, the investor has forty-five days to identify up to three properties and six months to complete the exchange.
The seller/exchanger is not allowed to take possession of the sales proceeds to qualify for a 1031 exchange, so a third party (known as qualified intermediaries) will need to be brought in.
Tax deferment, as you may know, means putting off paying the taxes until the final sale in the chain of properties takes place. At this point there are other strategies to employ such as the Deferred Sales Trust. This particular route tends to work well for when an investor does not wish to, or cannot, acquire like kind property.