Understanding Your Big Sale Taxes

Why the bill is bigger than expected

The three numbers that raise the tax on a sale

Most sellers know their sale price. Far fewer know their adjusted basis, how much depreciation will be recaptured, or what their loan does at closing. These three decide the tax.

1. Depreciation recapture. Every year of depreciation on a rental or business property is deducted from your basis, whether you claimed it or not ("allowed or allowable"). When you sell, that part of the gain comes back: up to 25% as unrecaptured Section 1250 gain on buildings, and at ordinary income rates on equipment and other Section 1245 property, which includes items pulled out by a cost segregation study. Inside an installment sale, the ordinary-income part (Section 1245, including cost-segregation items) is still taxed in the year of sale; the 25% unrecaptured Section 1250 gain is spread over the payments with the rest of the gain.
2. What lowers your basis. Your basis is not just what you paid. It goes down with depreciation, with basis carried over from an earlier 1031 exchange, with casualty losses and insurance reimbursements, and with certain credits and deductions taken on the property. It goes up with capital improvements you can document, and with purchase and sale costs. A lower basis means a larger gain, and a larger tax.
3. How debt affects the tax. Paying off the mortgage at closing does not reduce the tax: the loan the buyer takes over or you pay off counts as part of what you received. If you did a cash-out refinance, your loan can be larger than your adjusted basis, and the tax can be more than the cash you walk away with. In a 1031 exchange, debt paid off and not replaced is taxable "mortgage boot". In an installment sale, a mortgage above your basis is treated as a payment in the year of sale.

What the hour covers

The five ways the tax on a big sale gets paid, deferred or shrunk

Every strategy people hear about at a cocktail party fits in one of these buckets. We walk through the rules for each, who they actually work for, and the questions to ask before you sign anything.

1. Pay it. Federal capital gains at 0%, 15% or 20%, plus the 3.8% net investment income tax, plus 25% depreciation recapture on real estate, plus your state (California 9.3% to 13.3%, nothing in Texas or Florida). What a $2 million gain really costs in 2026.
2. Swap it: the 1031 exchange. Real estate only. 45 days to identify, 180 days to close, a qualified intermediary, and what happens to the tax when you die (the step-up). Why it does not work for a business sale.
3. Swap it without becoming a landlord: the Delaware statutory trust. A 1031 into a fractional interest in institutional property. Income, liquidity limits, fees, and the questions the brochure does not answer.
4. Spread it: the installment sale, Section 453. Seller financing and the structured installment sale, where the buyer pays cash but the seller is taxed as the money arrives. Works for businesses, land, commercial property and even a primary residence. The 453A interest charge above $5 million and the difference from the "monetized installment sale" and "deferred sales trust" arrangements the IRS has flagged.
5. Give part of it: the charitable remainder trust, and the other exits. CRTs, opportunity zones, QSBS for company stock, and the Section 121 exclusion on a home. Which ones are real for a typical seller and which only work at $10 million.

The rules of the room

Education only. Nothing is sold, no one is pitched.

The Retirement Literacy Foundation is a 501(c)(3). The workshop explains how the tax code treats a sale so that you can have a smarter conversation with your own CPA, attorney or advisor. We do not recommend products, we do not take a fee, and we do not share your information. Bring your questions, bring your spouse, bring your numbers if you want them run live.

Presenter: Hans Goldstein, Retirement Literacy Foundation. This is general education, not tax, legal or investment advice. Every sale is different; verify anything you plan to act on with a qualified professional.