If you sell certain property and have a taxable gain, you can defer taxes if you structure it as a Section 1031 exchange. Equipment used in a business could qualify, but if old equipment is traded in on new equipment, it is not necessary to use a Sec. 1031 intermediary. In the case of a rent house, however, you are not likely to trade in an old house on a new house. You are more likely to sell the old house, then, after a delay, buy a new rent house which gives rise to the possible need to use the provisions of Section 1031.
The following example illustrates the process:
Day 1: Sell rent house FOR $ 110,000 with funds going to a qualified intermediary.
The house cost $ 100,000 and is fully depreciated so the basis for
gain/loss is zero. If there is no section 1031 exchange, then the entire $110000 would be taxable as ordinary income.
Day 45 (or earlier):  Identify the Replacement property ( new rent house) which
will cost of $ 200,000—consisting of $110000 down payment derived from the sale of the old house and a mortgage for $ 90,000.
Complete the “identification of Replacement
Property” and give it to the qualified intermediary. NOTE: this can be
done before the 45th day if the replacement property is identified earlier.
Day 180: This is the deadline. The replacement property must be
acquired by the 180th day.
There will be a deferred gain of $ 110,000 on the old house.
The new house will have a depreciation basis of $ 90,000 ($200,000
minus the deferred gain). NOTE: The $ 90,000 basis assumes NO
value for the land. If the land was worth $25,000 then the depreciable
value would be reduced to $ 65,000.