Beth Davis

All County Editor

Selling an Investment Property: What It Means for Your Taxes — and How a 1031 Exchange Can Protect Your Wealth

Selling an investment property is often a smart financial move. Whether you’re upgrading to a larger asset, reducing risk, or repositioning your portfolio, a sale can unlock equity and opportunity. However, many investors hesitate to sell for one major reason: taxes.

Without proper planning, a successful sale can trigger a significant tax bill. The good news is that with the right strategy—particularly a 1031 exchange—you can often delay those taxes and continue growing your real estate portfolio instead of writing a large check to the IRS.

Here’s what every real estate investor should know before selling. For additional tips on growing long-term wealth through real estate, read Sandy Ferrera’s book.  It is important to understand what selling a Rental Property can impact your taxes.  To minimize Taxes consider using a 1031 Exchange.

What Taxes Are Triggered When You Sell a Rental Property?

When you sell an investment property for more than you paid for it, the IRS considers the difference a capital gain. But for rental property, there are usually two layers of tax:

1. Capital Gains Tax

This is based on the property’s appreciation.

• If held longer than one year, it is taxed at long-term capital gains rates (typically 15%–20% federally).

• Some states add their own capital gains taxes on top of that.

2. Depreciation Recapture

Even if you never claimed depreciation on your tax return, the IRS assumes you did.

• Depreciation is taxed at up to 25%

• This can easily add tens of thousands of dollars to your tax bill

Example

Let’s say you bought a rental for $250,000 and sold it years later for $450,000.

• Appreciation = $200,000

• Depreciation taken = $80,000

You could owe:

• Capital gains tax on $200,000

• Depreciation recapture on $80,000

Many investors are shocked when their tax bill reaches $50,000 to $100,000+ on a single sale. Selling an investment property requires proper planning.

How a 1031 Exchange Can Eliminate (or Delay) Those Taxes

A 1031 exchange allows you to sell one investment property and reinvest the proceeds into another without paying capital gains or depreciation recapture taxes—as long as you follow the rules.

Instead of giving that money to the IRS, you reinvest it and keep compounding your wealth.

Key Benefits of a 1031 Exchange

• No immediate capital gains tax

• No depreciation recapture tax

• More money to reinvest

• Ability to upgrade into larger or better-performing properties

• Portfolio repositioning (location, asset type, cash flow, or risk level)

Over time, this allows investors to scale from small properties into much larger assets while deferring taxes indefinitely.

1031 Exchange Rules You Must Follow

The IRS is strict, but predictable. The most important rules are:

1. Like-Kind Property

You must buy another investment or business property.
Single-family rentals, multifamily, commercial, and land all qualify.

2. 45-Day Identification Rule

You have 45 days from closing your sale to identify replacement properties in writing.

3. 180-Day Closing Rule

You must close on the new property within 180 days.

4. Use a Qualified Intermediary

You cannot touch the sale proceeds. A third-party escrow must hold them.

One mistake can disqualify the exchange—so professional guidance is critical.

When Selling Without a 1031 Might Make Sense

Not every investor should do a 1031. You might choose to pay the tax if:

• You are retiring and want to cash out

• You are converting to a primary residence

• You need liquidity for non-real estate investments

• You have losses elsewhere to offset gains

The key is that this should be a strategic decision, not a surprise tax bill.

Why Smart Investors Plan Before They Sell

The biggest mistake investors make is calling a Realtor after they’ve already decided to sell. By then, it’s often too late to structure the deal correctly.

High-performing investors coordinate:

• Property managers

• Tax advisors

• Exchange intermediaries

• Real estate professionals

This allows them to sell at the right time, maximize value, and preserve wealth.

How All County Helps Investors Sell Smarter

At All County Property Management, we work with investors every day who are preparing to sell, reinvest, or reposition their portfolios.

Because we manage thousands of rental properties nationwide, we help owners:

• Understand the true performance of their investment

• Identify the right time to sell

• Prepare properties to maximize resale value

• Coordinate with professionals for 1031 exchanges

• Transition seamlessly into their next investment

Whether you are selling a single rental property or restructuring a multimillion-dollar portfolio, proper planning can mean the difference between losing wealth to taxes and growing it.

All County understands what it takes to capture the most money for your investments.  For a free consultaion visit www.AllCountyProp.com today.

Thinking About Selling? Get Expert Guidance First

Selling a rental property should be a financial win—not a tax surprise. With the right strategy, you can turn today’s equity into tomorrow’s income while keeping more of what you’ve earned.

If you’re considering selling an investment property, talk with your All County® team before you list. We’ll help you understand your options and make sure every dollar works for you.