For owners of investment real estate -- from vacation condos to rental apartments and farms -- 1988 could be the year of the tax-free exchange.

That's the view of lawyers, realty brokers and others familiar with an arcane-sounding section of the federal tax code known as "1031."

When Congress went home in December after rebuffing tax reformers' efforts to curtail exchanging, its proponents wanted to shout their gospel from the rooftops: Don't sell your investment or business property in 1988 without considering the possibility of saving taxes through a swap.

"There's no question we're going to see a major increase in exchanging" in the wake of the Congressional green light, said William Wasserman, a nationally prominent tax partner with the Los Angeles law firm of Loeb and Loeb.

One of the country's most active exchange "intermediaries," Richard Sevin of the American Deferred Exchange Corp. of Los Angeles, predicts a minimum 50 percent jump in the number of property swaps this year over the 1987 level.

With Capitol Hill's stamp of approval now "clear and unassailable" for at least this year, said a Washington lawyer, "property owners will be missing the boat if they ignore this opportunity."

Section 1031 of the Internal Revenue Code allows deferral of federal taxes indefinitely on real estate gains, provided property is exchanged for "like-kind" real estate rather than sold for cash.

A key limitation in section 1031 is that it applies solely to real estate "held for productive use in trade or business or for investment."

Your home doesn't qualify.

Nor does your place at the beach, unless you rent it out and treat it for tax purposes as an investment property.

Any other business or investment real estate you own, however, may well qualify for favorable tax treatment. That's because the definition of "like-kind" is extremely broad.

You can swap avocado acreage in California for a Florida condo or Cape Cod marina "dockominium" unit.

You can swap a small Philadelphia rental-apartment building for town houses in Texas or residential lots near Portland.

Although realty swaps can protect owners from huge tax liabilities (congressional reformers put the revenue price tag at $1 billion over three years), the technique has boomed only recently.

California investors have used exchanges for years, as have sophisticated developers and corporations elsewhere around the country.

But only since the Tax Reform Act of 1986 eliminated the former 20 percent maximum capital-gains tax have smaller-scale investors begun to pay attention to tax-saving swaps.

Rather than sending Uncle Sam 28 or 33 percent of the appreciated gains on property, they've concluded, why not pay zero and keep their entire equity value intact, tax-free? Instead of selling property in a conventional transaction, why not trade up to something bigger, better or easier to manage?

Why not, indeed? If you think you could save taxes with a swap, consider these pointers:

Get in touch with a lawyer or real estate professional who has experience with 1031 exchanging. Californians have the widest selection of choices. Not only can they talk to a commercial realty broker, accountant or tax lawyer, they can discuss their situation with escrow firms or a specialized exchange "facilitator" or intermediary.

Property owners elsewhere should contact commercial real estate brokers -- particularly those with the professional designation "CCIM" (certified commercial investment member) awarded by the National Association of Realtors.

There are more than 8,000 such brokers nationwide. Tax and real-estate lawyers should also be able to help.

There are two broad categories of exchanges -- simultaneous and delayed. A simultaneous swap involves a direct, across-the-table settlement: You get a rental duplex down the street, for instance, and hand over the keys to your ski retreat. Far more common, however, is the delayed exchange.

You deed property over to an intermediary, who then sells it for cash to a buyer you've identified in advance.

The intermediary then uses the cash to acquire an acceptable, advantageous piece of real estate and deeds it to you.

Under federal law, you have to identify your intended exchange property within 45 days and complete the swap transaction within 180 days of the first closing.

Tax-free exchanges involve fees, and you need to know them.

There are likely to be brokerage commissions, local-transfer taxes, title costs and some extra legal charges by the tax lawyer preparing the documents.

If you involve a professional exchange intermediary, there may be an additional charge.

The bigger the federal taxes you avoid -- that is, the more profits you've racked up in your real estate -- the less painful these fees will be.

Make certain your equity dollars are safe. If you are depending on a broker, lawyer or intermediary to hold large amounts of cash in a delayed exchange, get a surety arrangement or bank letter-of-credit to guarantee that the money isn't jeopardized in the event of a death, business failure or attempted fraud.

The last thing you want is to finance an unscrupulous exchange broker's retirement to a Caribbean hideaway, leaving you with no property, no money and a mind-numbing tax mess.