The strategy in plain terms
"Swap till you drop" means doing a 1031 exchange every time you sell investment property, rolling 100% of your equity forward. No capital gains or depreciation recapture is paid along the way — all the compounding happens without a tax leak. You hold the final property until death.
The step-up at death
Under IRC Section 1014, heirs inherit property at its fair market value on the date of death — not the decedent's lower adjusted basis. All the accumulated deferred gains and recapture are reset to zero. Heirs can sell immediately at minimal tax, or restart depreciation from the higher stepped-up basis.
Important caveats
Estate tax may apply to large estates (thresholds are subject to legislative change). The step-up only helps for property held in the estate at death — it doesn't apply if you sell without another exchange. Always model the full picture with both an estate attorney and a CPA.
Frequently asked questions
Does 'swap till you drop' eliminate capital gains taxes?
For heirs, potentially yes — the step-up in basis at death can erase the accumulated deferred gains and recapture entirely.
What if Congress changes the step-up in basis?
It's legislative risk. Review your estate plan whenever major tax legislation is proposed or passed.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.