It’s not uncommon for a property owner to experience a drop in income when they sell their rental property. Capital gains taxes are typically assessed on the difference between the sales price and the original purchase price, plus any other closing costs. You may also be subject to taxes based on the amount of time you have held the property as it is considered a personal use asset if you have owned it for less than two years. This article will give you the steps to prevent a tax hit when selling a rental property.

1. Hold off on selling your home

The IRS has stated that if you own more than one rental property, you cannot use the proceeds of any sale of one to offset similar sales in another transaction. In other words, if your primary residence is also listed for sale, it is not possible to deduct part of your income from the new rental property in order to pay down part of the mortgage on the primary residence. (Even if your new rental property is in the same state as your primary residence. This is definitely a tricky area of the tax code, which is why we always recommend that you consult with your CPA if you are planning on selling your primary residence or any other property that has built up a lot of equity.)

2. Get the tax credit while you can

If you can defer capital gains taxes on your rental property, you may be able to benefit from the 1031 exchange rule. Under this rule, if one piece of real estate is sold and another of equivalent value is purchased within 180 days, no taxes will be due upon the sale. This same rule applies to stocks as well as real estate. This gives investors some flexibility in choosing how they want to utilize their funds.

3. Do not let the sale of your property trigger a capital gains tax liability

While it may be tempting to agree to sell the property to a buyer who will take all of your hard-earned money, you should never agree to a lowball offer that is less than what your property is truly worth. This will definitely trigger a capital gains tax liability when you learn that you are not making as much profit as had originally been estimated at closing.

If possible, sell your property with the intent on getting an offer that is fair and equal to market value. If a buyer has made an offer that is lower than your property’s value, you might be able to use the owner financing provision with a lease option to help you gain equity while holding the property in your portfolio. This will allow you to obtain a profit while still being able to maintain control over the property.

4. Consult an accountant before selling your property.

If you would like to consult with a CPA regarding tax implications of real estate investment, there are many organizations that can help guide you in the right direction. The National Association of Realtors also offers information on titles and deeds for any U.S. state within their membership.

Because of its subjective nature, real estate is often a gray area for taxes. It is important to always consult with a CPA before making any substantial changes or decisions regarding your current portfolio. You should also consult with one before selling a rental property because many tax laws and regulations can differ from state to state.

While this may seem like a lot of work, it is definitely worth it in the end! It can save you thousands of dollars if you properly plan out your sale before the final price has been negotiated.

5. Find a qualified real estate agent to help with your sale.

Not everyone knows the ins and outs of real estate and selling a property can be complex, but there are professionals who can help you in every step along the way. Finding an agent who is qualified and capable of taking care of all the details for you can make all of the difference. This will allow you to spend less time worrying about what is going on behind the scenes, and more time enjoying your new life as a home owner!

6. Hire a relocation company.

If you are planning on moving, there are companies that can help with every step of the process, including finding a new place to live and helping you through the complex closing process. These companies will help you move without any of the stress and they also have experience in finding new accommodations that best fit your needs as a renter or buyer.

7. Consider consolidating your debt before selling your property.

If you have debts that need to be paid off or want to take advantage of tax deductions this year, consider paying off all of your other debts prior to selling your property and moving onto the next investment deal. This may help you gain a larger tax benefit (or more security) and will help you avoid needless spending while on vacation.

8. Sell your property while you still can!

There is never a time when it is too late to sell your rental property. Even if you have been holding it for a few years, you can sell anytime you want. Many people choose to wait out the market because they think that their property is going to be worth more later on, but the truth of the matter is that there is no way to tell what the market will do.

If you are thinking about selling your property, we highly recommend that you do not wait until later in life because of health problems or empty nest syndrome. The sooner you get started on a new and exciting adventure, the better! You should also consider consulting with a financial advisor before selling your property if it is listed under an LLC.