Yes. What you've heard about is a transaction commonly known as a nontaxable exchange or like-kind exchange. A like-kind exchange, when properly executed, can postpone the recognition of gain or loss (and current tax on any gain) by shifting the basis of property sold to like-kind replacement property. You do this by acquiring a like-kind property, which may be of lesser or greater value. If the replacement property is of a lesser value than the value of the property you transfer, you may also receive non-like property such as cash, equal to the difference in values, when you receive your replacement property. If so, you must recognize the gain on the transfer of your rental property, but only to the extent of the non-like-kind property you receive.

To successfully defer gain in a like-kind exchange, you must comply with the requirements under section 1031 of the Internal Revenue Code and the Income Tax Regulations thereunder. For example, when you sell your rental property, you can't take actual or constructive receipt of the sale proceeds. You can avoid actual or constructive receipt of the proceeds if you comply with one of the safe harbors, such as using a qualified intermediary or a qualified trust to hold and use the sale proceeds to acquire the replacement property, as set forth in the Income Tax Regulations or certain other publications of the IRS.

The basis of the property you acquire in a like-kind exchange is generally the same as the basis of the property you transferred. However, if you transfer money or other property (not like-kind) in addition to like-kind property, your basis in the property acquired is the basis of the property given up, increased by the amount of money or other property transferred. 

Also, if you recognize gain on the exchange because you received cash or other non-like-kind property in the exchange, your basis in the property acquired is the basis of the property given up, with the following adjustments: 

1. Decrease the basis by the following amounts.

  a.         Any money you receive.

  b.         Any liabilities assumed by the other party (or paid off in a deferred exchange) on the like-kind property given up.

  c.          Any loss you recognize on the exchange for non-like-kind property given up.

2. Increase the basis by the following amounts.

  a.         Any additional costs you incur.

  b.         Any liabilities you assume (or new debt incurred) on the like-kind property received.

  c.          Any gain you recognize on the exchange.