If you want to sell a highly appreciated property while minimizing the taxes you owe, here are the 3 most powerful tools:
MOST POPULAR: 1031 Exchange
How It Works
Sell your property. The proceeds from sale are held by a Qualified Intermediary (QI) because you can’t touch the cash. Simple process.
Within 45 days of the sale closing, identify your replacement property. Simply notify your QI in writing so you have an audit trail.
Within 180 days of the sale closing, close on the replacement property.
To fully defer tax, the replacement property should cost at least as much as the just sold property. The new property must be in the U.S. and held for “investment” purposes.
Tax Benefits
Capital gains deferral: No current tax on the gain; you defer both long-term capital gain and most depreciation recapture into the replacement property.
Step-up at death: If you hold the replacement property until death, heirs typically get a step-up in basis, which can effectively wipe out the deferred gain.
Financial Benefits
Keep 100% of your equity working: Instead of paying a large tax bill now, you redeploy the entire sales proceeds—often enabling a larger, higher-quality replacement property.
Upgrade cash flow/risk profile: Trade from management-heavy or low-yield assets into higher-NOI or more passive options (e.g., NNN).
Why It May Be Right for You
You want to sell a highly appreciated property but keep your capital fully invested.
You value income and simplicity while postponing taxes.
You want the possibility of a step-up in basis for your heirs.
MOST SIMPLE: Installment Sale
How It Works
You sell the property and carry a note (seller financing) so the buyer pays you over time (down payment + periodic principal/interest payments).
Each principal payment is split between return of basis and taxable gain using a gross-profit ratio (gross profit ÷ contract price); the gain portion is recognized as payments are received.
Interest you receive is ordinary income.
You report the sale initially and then file Form 6252 each year to report the gain portion and interest until the note is paid off.
Secure the note with a first-position deed of trust/mortgage, include covenants and remedies (acceleration, collateral, personal guarantees) to manage credit risk.
Tax Benefits
Defers capital gains into future years: you recognize gain only when cash comes in, not all at once in the sale year.
Bracket management: spreading the gain can help avoid higher capital-gains brackets and reduce exposure to the 3.8% NIIT in a single year.
Timing control: you can structure payments to align taxable income with other planning (Roth conversions, retirement, etc.).
Depreciation recapture is generally taxed in the year of sale—the down payment can be used to pay this.
Financial Benefits
Improves buyer pool & price: offering terms can attract more buyers and support a higher sale price or faster deal.
You earn interest in addition to the sale price.
Flexible structuring: choose amortization, balloon, or step-up payments; add collateral or guarantees to reduce risk.
Why It May Be Right for You
You want to minimize current-year taxes but don’t want the constraints of a 1031—and you’re comfortable lending to your buyer.
You’re selling an asset that’s highly appreciated and prefer steady income rather than a lump sum.
You value simplicity and control (no QI, no 45/180-day deadlines).
LEAST UNDERSTOOD: Charitable Remainder Trust
How It Works
You contribute your appreciated property to the Trust before selling it.
Because the Trust is a tax-exempt entity, it can sell the property without paying capital gains taxes at the time of sale.
The full proceeds (not reduced by taxes) stay inside the Trust and get reinvested.
You or your chosen beneficiaries receive an income stream from the Trust for life or for a set number of years.
When the Trust term ends, whatever is left in the Trust goes to the charity you designated.
Tax Benefits
Capital gains deferral: Since the Trust sells the asset tax-free, you avoid an immediate capital gains hit. You’ll instead pay income tax gradually on the distributions you receive.
Income tax deduction: You get an immediate charitable income tax deduction based on the actuarial value of the eventual gift to charity.
Estate tax planning: Assets placed in a Trust are generally removed from your taxable estate, which can help reduce estate taxes.
Financial Benefits
Bigger reinvestment base: Since the trust doesn’t lose 20–30% upfront to capital gains, the entire sale amount can be reinvested to generate income.
Customizable payouts: You can choose between a fixed dollar amount each year (Charitable Remainder Annuity Trust) or a fixed percentage of trust assets (Charitable Remainder Unitrust).
Flexibility in timing: The Trust can stretch income payments over decades, which often helps smooth out tax liabilities.
Why It May Be Right for You
If you own a property with a large built-in gain and you want to minimize or defer capital gains tax, generate ongoing income for yourself or your heirs, and still benefit a cause you care about, then a Charitable Remainder Trust is often the “win-win” strategy.