Tax Hive Featured in Clever Real Estate on Sell Your Rental Property: 5 Ways to Avoid Paying Taxes
Overview of the Article
This Clever Real Estate article explains the tax consequences that can arise when selling a rental property and outlines several strategies investors may use to reduce or defer those taxes. When a rental property is sold for more than its adjusted basis, the seller may owe capital gains tax as well as depreciation recapture, which can significantly increase the overall tax bill.
The article reviews several planning strategies that investors commonly use when selling rental real estate, including 1031 exchanges, converting a rental property into a primary residence, tax-loss harvesting, strategic timing of a sale, and opportunity zone investments. Gene Bott of Tax Hive was featured in the article to provide expert insight into one of the most commonly misunderstood tax issues associated with rental property sales — depreciation recapture.
Expert Commentary from Tax Hive
Primary Featured Quote
“Depreciation recapture is easily the biggest surprise a seller faces when selling a rental property.”
— Gene Bott, Partner and Tax Advisor at Tax Hive
Additional Quoted Insights
The article explains that depreciation allows rental property owners to deduct a portion of the property's cost each year over a 27.5-year schedule. However, when the property is sold, the IRS typically taxes the total depreciation previously claimed at a rate of up to 25%, which can create an unexpected tax liability for sellers who were not planning ahead.
It also highlights how planning strategies such as 1031 exchanges can allow investors to defer both capital gains and depreciation recapture taxes by reinvesting the proceeds into another qualifying investment property.