It’s possible to divest yourself of appreciated investment real estate or rental property but defer the tax liability. Such strategies may be less risky from a tax perspective now that the Taxpayer Relief act has made capital gains tax rates permanent. Nevertheless, tread carefully if you’re considering a deferral strategy such as the following:
Installment sale. An installment sale allows you to defer gains by spreading them over several years as you receive the proceeds.
Warning: Ordinary gain from certain depreciation recapture is recognized in the year of sale, even if no cash is received.
Sec. 1031 exchange. Also known as a “like-kind” exchange, this technique allows you to exchange one real estate investment property for another and defer paying tax on any gain until you sell the replacement property.
Warning: Restrictions and significant risks apply.
Source: Sol Schwartz & Associates, P.C.