In the future, if Homer sells the new property in a taxable sale, the gain that he previously deferred will be taxed, as well as any future gain. Eliminating the Capital Gains If Homer keeps the new property until he dies or replaces it in the future in another exchange his heirs will inherit the property at a stepped-up basis , which means their basis will be the fair market value of the property at the time of Homer's death. The heirs can immediately resell the property for zero gain or in the future be taxed only on the gain which accumulates after Homer's death. The gain that Homer has deferred is eliminated. It cannot act as the tax or legal adviser for an exchanging taxpayer.
Any person considering a tax-deferred exchange is advised to seek independent tax and legal counsel.