My original basis is $900k. When the property is worth $2.23 million, I swap it for a different property worth $2.2 million. $1.3 million of of gain is deferred. The new property is worth $2.2 million, but I don't have $2.2 million in basis - I only have $900k in basis, because of the $1.3 million in deferred gain.

If I then sell the new property for $2.2 million, I don't have $2.6 million of gain - I have the same $1.3 million in gain. If it actually decreases in value to $2 million, I have only $1.1 million in gain - the same as if I still owned the original property and sold it for the same $2 million.