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Tax Strategies for Selling Real Estate

Tax tips when selling your main home:

  • If you lived in your home for a minimum of two out of the last five years, then you may exclude up to $500K of capital gain from the sale of your main home. If you’re married it’s a $500K exclusion and if you’re single it’s a $250K exclusion.
  • The capital gain is determined by the purchase price, sales price, cost of improvements, and selling expenses. The amount of your mortgage loan doesn’t matter.
  • If your capital gains exceed $250K or $500K, then work with a CPA on strategies to minimize your taxes.

Tax tips when selling rental properties:

  • There are several options when selling a rental property. The best option depends on your financial situation.
    • Do nothing and pay all the capital gains tax
    • 1031 exchange (invest in replacement property, defer taxes indefinitely, low fees)
    • Deferred Sales Trust (don’t need to reinvest in replacement property, but still pay 100% of taxes over 10-20 years, fee of 2%/year)
    • Monetized installment sale (don’t need to reinvest in replacement property, defer taxes for 30 years, but fee is 6.5%)
    • Land conservation easement (reduce taxes by over 50% on ordinary and capital gains income, $50K investment reduces your taxes by $100K)

Tax tips when buying rental properties:

  • A more tax efficient way to invest in real estate is to use your retirement account. If you’re going to use this strategy, it’s better to buy a rental property within a self-directed solo 401(k) than a self-directed IRA. With the 401(k), you avoid the UDFI (unrelated debt financed income) taxes and you can leverage the 401(k) and borrow from it tax-free and penalty-free.
  • Bonus for business owners: You can contribute up to $56K/year to your 401(k) which allows you to save on taxes and invest in even more real estate.


Premier Tax & Financial Advisors
(408) 217-9992

Mr. Brian Chong is the founder of Premier Tax & Financial Advisors in San Jose and highly rated on Yelp. Brian is a licensed CPA, CFP, Enrolled Agent, and has a Bachelor’s degree in Economics from UC Berkeley and a Master’s degree in Taxation from San Jose State. 

Brian has 17 years of tax experience. Prior to starting his accounting firm 5 years ago, Brian worked at Ernst & Young, Cisco Systems, and Marcus & Millichap. The majority of his clients are tech professionals, real estate investors, and business owners.