The taxpayer can dispose of property and acquire new property without immediate capital gains liability. In effect, this is an "interest-free loan" from the government that can be increased through subsequent exchanges.
Under current law, the deferred tax liability is forgiven upon the death of the taxpayer- the taxpayer's estate never has to repay the "loan."
Business considerations should play the dominant role in the decision to make an exchange. For example, the need or desire to:
Consolidate or diversity investments
Obtain greater appreciation for the real property
Increase cash flow
Relocate a business investment
Eliminate management problems
Disadvantages and Other Considerations
Reduced basis in the Replacement Property, resulting from the carry-over of the basis of the Relinquished Property
Lower depreciation deductions
Possible additional escrow, attorney, accounting, intermediary and accommodation titleholder's fees.
Net proceeds from the disposition of the property cannot be used for anything except reinvestment in real property (without tax consequences).