3 Tax-Saving Strategies for Sellers
How to lower your tax bill—or at least defer it.
If you’re planning to sell an apartment asset, you’ve probably invested in some repairs and improvements to spruce it up a bit, interviewed real estate brokers and started thinking about where you’re going to redeploy the net proceeds. But have you planned for the tax bill you might receive?
“Especially with multifamily properties, it’s absolutely critical for owners, when acquiring and operating the property, to consider how it’s structured in order to effectively and efficiently dispose of the property from a tax standpoint,” said Rob Wall, a tax partner at law firm Akerman LLP in Winston-Salem. “It may cost a little bit of money to consult with someone on planning the structure beforehand, but it will be a lot less expensive than trying to fix it after a sale.”
In other words, Wall recommends planning for an exit strategy before you make an investment in multifamily or any other type of commercial property. By planning early, there are strategies you can use to minimize the taxes due upon the eventual sale of the asset.
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“Structuring the transaction correctly on the front end is a make or break for some tax advantages,” said Cristy Andrews, a certified public accountant and local partner in charge of Warren Averett in Montgomery, Ala.
Here are three common ways to structure the sale of an apartment property to minimize or defer the taxes you’ll pay on the sale.
Section 1031 exchanges
Section 1031 of the internal revenue code provides for beneficial tax treatment for taxpayers who dispose of business or investment property at a gain pursuant to a qualifying like-kind exchange. Under the rules, the seller can postpone paying tax due on the gain as long as the proceeds are rolled over into a “like” property (i.e., an interest in real estate). Note that the gain is deferred in a like-kind exchange; the sale is not tax-free.
There’s no limit on how many times you can do a 1031 exchange. Many commercial property owners “flip” properties this way repeatedly, continuing to defer the capital gains taxes due on each sale. Any type of real estate qualifies, so if you want to exchange an apartment project for a triple-net-lease retail building, that’s fine as long as both properties are held for business or investment use and are located within the United States. Note that the property must be held in a trade or business, but it cannot be inventory—it must be a capital asset.
But there are strict rules to qualify for a Section 1031 exchange—and time limits with which the parties must comply. First, the seller must identify one or more replacement properties within 45 days of the date of the sale. Then, that replacement property must be acquired within 180 days of the sale. If you miss those deadlines, you’ll lose the tax-deferral advantages of Section 1031.
Locating a replacement property in a competitive market can be a challenge. That’s why some taxpayers use Delaware Statutory Trusts complete the transaction. Those who can’t find a suitable replacement property within 45 days can invest in a DST to defer the capital gains tax due. DSTs, which are investment vehicles allowing investors to own fractional interests in real estate assets, are considered interests in real estate for tax purposes under Delaware law. In other states, co-tenancies are commonly used with a similar effect.
Qualified Opportunity Zones
If you sell an apartment building, you can defer any capital gains taxes due by reinvesting those gains into a qualified opportunity fund. Previously, gains could only be deferred until Dec. 31, 2026, but the One Big Beautiful Bill Act, signed into law in July 2025, made changes to this program, including making it permanent and extending the period of deferral. And, for those who reinvest their gains for at least 10 years, gains are fully excluded—meaning that you could avoid taxes altogether on the sale.
Installment sales
If you don’t need the equity from an apartment building, consider financing the deal for the buyer, structuring the transaction as an installment sale. While you can’t avoid taxes on gains altogether this way, the installment-sale method does allow you to recognize the gain over an extended period as you receive payments on the note. That allows you to spread out the gain—and the taxes due.
These are just a few of the more common tax-deferral and tax-saving strategies available to sellers of apartment buildings. Of course, there are additional strategies: UPREITs, charitable remainder trusts, gifting the property and, of course, the ultimate tax shelter—death, which can give heirs a stepped-up basis to market value as of the date of death. If the heirs sell the property immediately at no gain over market value, it will be a tax-free transaction.
“I hate to say this, but for tax purposes, if you have appreciated property, it’s always good to die,” said Andrews.
If you’re planning for the disposition of an apartment property, here are some things to consider:
Consult your tax adviser as early as possible, and get advice from the correct expert. “Talk to not only a financial adviser, but your accountant or tax lawyer to see how you can set up the transaction in the most efficient way to plan for an exit,” said Wall. Don’t just rely on your real estate attorney for advice —seek out someone who has the specific expertise you need, such as a CPA who specializes in 1031 exchanges or Opportunity Zones.
Make sure the underlying business deal makes sense. “I know others who have done deals just to get tax benefits and have not only lost on the asset they purchased but ended up not deferring much gain,” said Michael Zaransky, managing principal of MZ Capital Partners. “In a situation like that, I’d rather just pay the tax.”
Offset gains with losses. Review your portfolio at least once a year. If you disposed of an asset and have a large taxable gain, consider selling other assets that are not performing well to create a loss that offsets that gain. Alternatively, purchase a new apartment property in the same tax year as the sale, perform a cost segregation study and generate accelerated depreciation write-offs to offset the gain.
“The ability to use accelerated depreciation methods when you purchase a property is exceedingly valuable,” said Zaransky. “When you buy a new property, you’re able to depreciate a big portion of the purchase price in the first year by doing a cost segregation study, and that yields an extremely large depreciation deduction. So, if you sell another property in the same calendar year, you can offset the gain —and wipe it out permanently.”
When Zaransky purchased The Jax, a 176-unit building in Chicago’s West Loop neighborhood, he did just that, commissioning a cost segregation study to accelerate depreciation losses that he used to offset gains from the sale of another property the same year.
Dwight Dunton, founder & CEO of Bonaventure, said he is “very much focused” on the after-tax returns of his properties. “We have developed a deep expertise in all of the tools available to minimize gain recognition and minimize taxes,” he said. “Why some people still pay taxes is a good question. One of the reasons why is simply knowledge, and I think stories like this will help educate people about the tools and options out there to manage their tax liability.”
