Selling Rental Property Tax Implications

Q: I was surprised that you did not suggest that the 67-year-old man wishing to sell his rental property – which he owns free and clear – sell it as an installment sale. From what I read of his situation, this would minimize (if not obviate) his potential income tax liability. (My wife and I, both retired, have done this with the rental we no longer wished to own and maintain.)

Even though she and I are no longer real estate investors, we do love your columns.

A: The question you’re referring to was about avoiding paying any taxes on the sale of property.

You’re right: The reader could sell the property on an installment sale basis, but if he used an installment sale, he would pay taxes on the money he receives. While he might find that his tax burden in selling an investment property on an installment basis might be lower, he would also have the ongoing issue of not knowing whether his buyer would make his or her payments and have a risk that he might have to take the property back.

Still, an installment sale would have lowered the tax liability on a per-year basis, but not eliminate it entirely. Thanks for your suggestion and for the kind words.


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