Q:  Last week, you mentioned the concept of exchanging your way to the beach. Exactly how would something like that work?

A: In the world of investment real estate, an exchange is a way of selling one asset and replacing it with another and not having to pay any taxes along the way. There are specific rules and strict time limitations on identifying and acquiring the replacement property, but the scenario might work like this:

Let's say you have a piece of investment property in Atlanta. It might be a rental house, it might be a commercial building or it might be a parcel of land you have owned for several years. Whatever it is, your purpose in owning it must be as an investment and not as a primary or secondary residence.

Normally, if you sell anything you own and make a profit, you are required to pay income taxes on that profit. One exception to that general rule is the tax-deferred exchange, sometimes also called a Section 1031 exchange of investment real estate.

If you sell any investment property, and use a qualified intermediary to hold the proceeds of that sale, then acquire a replacement investment property within a 180-day time limit, you can defer taxes on the profit into the replacement property. You have to spend all the cash and replace all the debt in order to have a completely tax-free event, but even if you don't, the tax savings can be quite substantial.

It's important to remember that the IRS requires the replacement property to be "like-kind" to the property you sold. The good news is that the courts have defined "like-kind" to mean any property held primarily for investment.

So you could swap a rental house for a parking lot, or you could swap an office building for a tree farm. Likewise, you could exchange a house you rented out in Dahlonega for a rental condo on the beach at St. Simons. The key is that both properties must be held primarily for investment.

The next question that always comes up is "how do I prove that I acquired this as an investment?" The answer is that actions speak louder than words. In other words, rent it!

Lacking any other evidence, the IRS would likely accept that your intention was to acquire the replacement as an investment if you rented it to an unrelated party for at least one year, although some experts feel that longer would be better. Certainly, if you showed that the property was actively being marketed and rented for a two-year period, there would be little question as to your intention at the time of the transaction.

And if, after an appropriate time had passed, you decided to convert the replacement condo at the beach into your personal residence and move in, you are allowed to do so with no tax penalty. In fact, after living there as your principal residence for two years, you could even sell and exclude up to $250,000 of gain from taxation under the principal residence rule -- twice that amount if you are married.

This is a perfect example of the importance of proper planning when it comes to real estate ownership. Many individuals approach retirement owning more real estate than they ever dreamed possible. And proper estate planning can allow much of that capital gain to be recognized with a minimum of taxation if the right steps are followed.

As always, I recommend that investment property owners consult their tax professionals for advice on exchanges and other tax advantaged ownership moves.

For a more detailed look at exchanges, visit my Web site at money99.com, where exchanges will be the topic of the week.

Q:  I heard that teachers and firefighters in my town get special deals on mortgage loans. How can I find out what I might qualify for, and what is a good source for these special mortgages?

A: It is true that there are a variety of so-called specialty mortgages. They usually have a limited market and a certain number of dollars available before they run out of steam.

Typically, these loan programs are limited either by geography, income or occupation. Sometimes the limitations are a combination of two or more factors.

For example, the American Dream mortgage is limited to certain ZIP codes and further restricted to first-time home buyers.

Your best source for information about these kinds of loans is your local housing authority and the real estate professional you are working with.

To me, one of the big advantages of selecting an agent to help you find your next home is his experience in the housing market.

John Adams is a broker and investor. He hosts the "John Adams Radio Show," a call-in program dealing with homeownership and real estate airing at 1 p.m. Saturdays on WGST 640-AM.