You can cut the capital gains tax out of a real estate sale with the use of Exchange 1031. Exchange 1031 provides that if you are going to use proceeds of the sale of a real estate property to purchase additional property, you can avoid paying the capital gains tax. The idea is to bolster real estate sales by allowing taxpayers to waive this tax on your property sale if the main purpose of the sale is to purchase another property. This provision gives an incentive for both the buying and selling of property.

Capital gains taxes assessed in the sale of real estate are estimated at around 20%-30%. If a taxpayer is engaged in a "like kind" real estate purchase, the tax reduces his ability to purchase a similar property by effectively cutting the resale value of their property by 20%-30%. This, in turn, will reduce the amount of money that they are likely to spend on a "like kind" purchase of another property.