Final answer:
The liquidation of property acquired through a 1031 exchange without acquiring replacement property would trigger the payment of capital gains taxes previously deferred.
Step-by-step explanation:
When an investor decides to liquidate property previously deferred through a 1031 exchange and is not acquiring replacement property, capital gains taxes become relevant. The correct statement in this scenario is that capital gains taxes are triggered. A 1031 exchange allows an investor to defer paying capital gains taxes on an investment property when it is sold, as long as another "like-kind" property is purchased with the profit gained from the sale. Since the investor in question is not acquiring replacement property, the deferred capital gains taxes from the previous exchange must now be paid.