Cohen, division manager with Denver-based Asset Preservation, a 1031 tax deferred exchange "Qualified Intermediary," says real estate investors should immediately acquire a desirable replacement property prior to selling the relinquished property. Investors, Cohen says, can protect their exchanges that way and eliminate the pressure-filled problem presented by the 45-day identification period for a replacement property.

He notes tax-deferred exchanges have been part of the tax code since 1921. An exchange allows an investor to dispose of a property and defer the capital tax liability, increasing the earning power for the investor.

Increasingly, he says, investors are exploring creative uses of 1031 exchange strategies.

"Many Colorado investors are discovering they can build a brand-new investment property, all with tax-deferred dollars," he says. "In fact, more investors are combining a reverse exchange with an improvement exchange and creating a perfect opportunity to purchase the new property first--and begin making improvements to this property before the relinquished property is sold to a buyer."

Also, the purchase of fractional ownership interest in commercial real estate along with other co-owner is becoming increasingly popular, he says.

"The advantage of these tenant-in-common programs is that investors are able to participate in the benefits of a larger commercial purchase opportunity which often can result in a relatively passive investment generating a predictable monthly cash flow," Cohen says. "Many shopping centers, anchored by a tenant like a national grocery store chain are being sold in this manner."

Also, investors can convert a rental to a residence, which could mean getting up to $500,000 tax free from a couple selling their property, as long as they live in the former rental for 24 months out of a 60-month period. Investors with vacation homes in resorts, such as the ski resorts of Colorado, can look at vacation home exchanges, Cohen advises.

"Real estate located in resort or vacation areas may qualify for an exchange if the owner can establish that their "intent" was to hold the property for investment," Cohen says. "Property owners in many resort destinations are deferring 100% of their capital gain taxes and exchanging for more desirable properties.