Capital gain is deferred because you are using the same cost basis as the original property, then adding a new asset for the 'buy-up' in the exchange. The original cost basis doesn't change and becomes part of the new asset. The difference is that only the buy-up portion becomes a new asset with a date placed in service in the year of the exchange.
If there has been any boot received on the exchange, then there would also have been taxable gain in the exchange.
@ychenxx
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