Kassidy Wagner

Selling a property can be one of the biggest financial moves you’ll make—home, rental, farm, or investment. And the tax impact can be just as big. The good news: this is one of those moments where solid tax planning can materially change the outcome—but only if you’re doing the legwork before the sale closes.

How the sale impacts you (and what options are on the table) depends on your story: how the property was used, how long you’ve owned it, what you’ve put into it, and how the sale fits into the rest of your income this year and next.

This article is the framework. We’ll do future deep dives on each strategy (including how some can work together), but for now—here’s the playbook.

The Starting Point: Know What’s Being Taxed

When you sell property, there are two key figures to understand:

• Realized gain (or loss): what you actually made (or lost) economically

• Recognized gain (or loss): the amount you actually pay tax on

Your realized gain is generally the difference between your sale price and your adjusted basis, after factoring in selling expenses.

Adjusted basis can get nuanced—especially if you used the property for business, rented it out, converted it from personal to rental (or back), inherited it, or acquired it through a tax-deferred transaction. But in plain terms, it’s usually:

What you paid + what you put into it – depreciation taken (if any)

Where planning really comes into play is the recognized gain—because that’s what the IRS ultimately taxes, and it’s often the number you can influence with proactive planning and the right strategy choices.

Upcoming deep dive: We’ll walk through basis in more detail—especially for primary residences—including what improvements and costs are worth tracking, and we’ll share a simple Excel tracker you can use going forward.

Section 121: The Home Sale Exclusion

One of the most common and valuable tax breaks for homeowners is Section 121, often called the primary residence exclusion.

Under this rule:

• Single taxpayers may exclude up to $250,000 of gain

• Married filing jointly may exclude up to $500,000 of gain

To qualify, you generally must have:

• Owned the home for at least two years, and

• Lived in it as your primary residence for at least two of the last five years

Where planning matters

Things get more nuanced if the property has been:

• a rental at any point

• partially business or ag use

• converted back and forth between personal and business use

Those details can change what’s excludable and what isn’t—so it’s worth getting ahead of early, not after the closing documents are signed.

When Section 121 Doesn’t Apply (or Doesn’t Cover It All)

Most rentals, commercial properties, and investment land don’t qualify for the home sale exclusion. When that’s the case, you’re often looking at a taxable gain—unless you use an intentional strategy on the front end.

And here’s an important preview: some strategies can be used in conjunction with each other, depending on the facts and how the sale is structured. That’s why planning beats “we’ll figure it out at tax time.”

Strategy to Be Aware Of: 1031 Exchanges

A 1031 exchange can allow you to defer gain when you sell certain investment or business property and reinvest the proceeds into other qualifying property.

This is commonly used when selling:

• rental property

• commercial property

• income-producing real estate

It comes with strict rules and timelines, and the key takeaway is simple:

You have to plan it before the sale closes.

Upcoming deep dive: We’ll cover the 45-day identification rule, the 180-day timeline, and advanced variations like reverse exchanges and improvement exchanges.

Strategy to Be Aware Of: Installment Sales

An installment sale is when you receive the purchase price over time instead of all at once. That can spread the taxable income across multiple years instead of concentrating it in one—sometimes reducing the tax hit and improving cash flow.

This approach is often considered for:

• land sales

• high-value property

• seller-financed deals

Like the others, it must be structured in advance.

Upcoming deep dive: We’ll cover minimum interest rules, how gain is reported, planning opportunities, and the potential downsides.

Strategy to Be Aware Of: Section 1062 Election (Certain Farmland Sales)

In certain farmland transactions, a Section 1062 election (made on your tax return) can change how tax tied to the sale is handled.

This is a technical area, and whether it applies depends heavily on the transaction details—often in partnership, restructuring, or family-related scenarios.

Upcoming deep dive: We’ll explain when it applies, what it changes, and what to watch for.

The Big Picture

Once a property sale closes, many tax planning options disappear.

If you’re even thinking about selling your house, rental, business property, or land—start the conversation early. We’ll be doing deeper dives on each of these strategies in an upcoming issue, including when they can be combined and what questions to ask before you sign anything.

Our goal: by the time you sell, you already have a plan—because the best tax outcomes are almost always designed before the closing table, not after.