As outlined in the following link, the 1031 deferred tax exchange process, while a very effective financial tool, can be very complicated and often misunderstood  by those not familiar with the process.  We have helped several clients through this process and in a nutshell allowing them to defer capital gains taxes on existing rental properties sold and exchanged for like-kind rental properties.  If the requirements and timelines are not followed specifically as defined by the IRS – the transaction will not be considered a deferred exchange resulting in a capital gains tax liability for the seller. 

http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031