Simplified Explanation
One great benefit to ownership of real property held for investment is the Tax Deferred Exchange.  When done within the IRS guidelines, a property owner can sell Property A and exchange into Property B while deferring the Capital Gains tax until a later date.  The owner is able to reinvest all of the equity into another property and receive a return on the entire amount.

As per IRC §1031, a legal property exchange is the selling of one property with the intention of reinvesting the profits into a new property and thus deferring capital gains taxes. These transactions allow investors to continue investment in other property without losing investment equity to taxes.

"No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment."     IRC §1031

If you exchange investment property exclusively for like-kind investment property, no gain is recognized by the IRS, making the exchange a desirable option for investors eager to keep all of their real estate profits. Exchanges serve also as a factor in facilitating considerable portfolio growth and better Return on Investment (ROI).

The replacement property must be identified within 45 days and acquired within 180 days of the sale of the old property. To be eligible for a safe harbor tax deferral, the proceeds need to be held with a Qualified Intermediary between the time of sale and the purchase.

Actual Receipt - When the Exchangor actually receives the funds from the sale of the Relinquished Property. Receipt of cash by the Exchangor before he receives the Replacement Property may be enough to destroy the tax-deferred treatment of the transaction.

Basis - The starting point for determining gain or loss in any transaction. In general, basis is the cost of the property.

Boot - Real estate property or proceeds that the taxpayer receives in the 1031 exchange that does not qualify as “like-kind” property. Boot is subject to taxes.

Capital Gain - Capital gain is calculated as follows: total selling price of the Relinquished Property, less exchange expenses, less the Relinquished Property’s adjusted basis. The adjusted basis is the original cost, plus the cost of capital improvements, less depreciation or cost recovery deductions.

Identification Period - The time period that begins upon the transfer of the Relinquished Property. During this 45-day period, the Exchangor must identify the Replacement Property in order to continue with the Section 1031 exchange transaction.

Like-Kind Property - The Replacement Property in a 1031 exchange that is similar in classification or characteristics to the Relinquished Property. Like-kind property cannot be a primary residence or a second home and must be held for business or investment purposes.

Qualified Intermediary - The third party that helps facilitate a 1031 exchange transaction. Also called the Accommodator.

Tax-Deferred Exchange - A transaction that allows one to reinvest the proceeds from the sale of any property held for investment or business purposes (Relinquished Property) to another like property (Replacement Property) and defer capital gain taxes that would otherwise be due on the first sale. Also called a 1031 exchange, Starker Exchange, like-kind exchange and Delayed Exchange.