A 1031 exchange counts money you actually or constructively receive before you get the replacement property, so the qualified intermediary has to be in place before closing, and the 45-day and 180-day clocks start at the sale (Treas. Reg. 1.1031(k)-1, eCFR, checked October 14, 2026).
Why the tax conversation often happens after the sale
Most people selling a business or a long-held building already have a CPA or an enrolled agent. That professional is usually hired to prepare an accurate return: compliance work, often priced per return, looking back at a year already over.
So the preparer often first sees the sale in the paperwork: the closing statement or a Form 1099-S, Proceeds From Real Estate Transactions (IRS, Topic No. 701, Sale of Your Home, updated October 12, 2026). The first real conversation often happens in busy season, before the spring filing deadline.
This is not a failure by the professional. Planning is a separate engagement that most clients never ask for. The cost of that gap: several useful choices on a large sale end at a binding contract or at closing, long before the return is prepared. Our sibling page, tax preparation vs tax planning, explains the difference.
The choices that end at a signed contract or at closing
Installment sale (Section 453)
An installment sale reports the gain as payments arrive. The terms must be in the sale. IRS Publication 537 says that if the agreement has the buyer put the rest of the price into an irrevocable escrow account, the sale cannot be reported on the installment method, and a buyer note that is payable on demand or readily tradable counts as a payment in the year you receive it (IRS, Publication 537 (2025), Installment Sales, checked October 14, 2026). If the full price is paid to you at closing, there is nothing left to spread. See Form 6252.
Charitable remainder trust
A charitable remainder trust is an irrevocable trust that pays you income for life or a set term, and the IRS lists deferring income tax on the sale of assets moved into the trust as one of its benefits (IRS, Charitable Remainder Trusts, updated July 27, 2026). The timing rule is strict. In Ferguson v. Commissioner (9th Cir., decided April 7, 1999), owners gave stock to charities after a sale was already under way. The court held them taxable on the gain because the stock had already "ripened" into a fixed right to receive cash. This is the assignment-of-income doctrine, and the safe line can come before the signed contract.
1031 exchange
Since January 1, 2018, a 1031 exchange applies only to real property, not equipment, goodwill or other business assets (IRS, Like-Kind Exchanges: Real Estate Tax Tips, updated May 1, 2026). The regulation counts money you actually or constructively receive before you get the replacement property, which is why a qualified intermediary is set up before closing (Treas. Reg. 1.1031(k)-1, eCFR, checked October 14, 2026). You then have 45 days to identify replacement property and 180 days to finish, or less if your tax return is due sooner (same regulation). Try the 1031 boot calculator.
The one clock that starts after the sale
A qualified opportunity zone investment is different. You generally have 180 days beginning on the date of the sale to invest the gain in a qualified opportunity fund (IRS, Opportunity Zones Frequently Asked Questions, updated September 14, 2026). Under the original rules, deferred gain must be included in income no later than December 31, 2026 (same IRS FAQ).
The program changed in 2025. The IRS says the 2025 law makes the opportunity zone incentive permanent, with the first new round of zone designations taking effect January 1, 2027 (IRS, IR-2026-45, April 6, 2026). Ask your tax professional which rules apply to your gain well before day 180.
The costs that show up later
Your home. You may exclude up to $250,000 of gain on a main home, or $500,000 on a joint return, if you owned and lived in it for at least 2 of the 5 years before the sale (IRS, Topic No. 701, updated October 12, 2026). Gain above that is taxed. See selling a home with a large gain.
Depreciation. The part of a building gain that comes from past depreciation, called unrecaptured Section 1250 gain, is taxed at up to 25% (IRS, Topic No. 409, Capital Gains and Losses, updated September 24, 2026). RLF's Section 1250 guide shows the split.
The 3.8% tax. The net investment income tax applies to the smaller of your investment income or the amount your modified adjusted gross income (MAGI) is over $250,000 married filing jointly or $200,000 single (IRS, Net Investment Income Tax, updated July 1, 2026). See our NIIT page.
Medicare, two years later. 2026 Medicare premiums are based on 2024 MAGI, and the income-related surcharge (IRMAA) starts above $218,000 joint or $109,000 single (Social Security Administration, POMS HI 01101.020, effective December 2, 2025). See the IRMAA brackets.
State tax. See state tax on a $1 million gain.
When the after-the-fact approach is fine
Planning is not always worth its cost. If a home sale gain fits inside the exclusion, or the gain is modest, a plain sale with the tax paid on time can be right. Each option has a price: an installment sale carries buyer risk, a charitable remainder trust is irrevocable, and a 1031 exchange keeps you in real estate. The goal is to choose on purpose, before signing.
How to bring your CPA in before you sign
Call your preparer when you sign a listing or receive a letter of intent. Ask for a planning engagement, expect a separate fee, and get answers in writing. Bring purchase records, depreciation schedules and draft terms.
If your preparer does not do this work, ask for a referral to a tax professional who does, or a fee-only fiduciary. Run rough numbers first with the capital gains tax calculator or, for inherited property, the step-up in basis calculator. For a home or rental sale, our page on questions before you sell lists what a preparer should ask you. This is education, not tax advice.
A plain example with numbers
Hypothetical: a married couple sells a commercial building for $3,000,000 with a $600,000 adjusted basis, a $2,400,000 gain. $400,000 of it is past straight-line depreciation. Other income is $150,000. Top rates are used for each layer, so the real tax would be somewhat lower.
| Line (hypothetical, 2026 rules) | All gain in one year | Spread evenly over 10 years |
|---|---|---|
| Gain reported | $2,400,000 in one year | $240,000 a year |
| Unrecaptured Section 1250 gain, $400,000 at up to 25% | $100,000 | $100,000 (kept at 25% to stay simple) |
| Other gain, $2,000,000 | 20%: $400,000 | 15%: $300,000 |
| MAGI each year | $2,550,000 | $390,000 |
| Net investment income tax, 3.8% | 3.8% x $2,300,000 = $87,400 | 3.8% x $140,000 = $5,320 a year, $53,200 total |
| Federal total | $587,400 | $453,200 |
| Medicare Part B premium per person, two years later | $689.90 a month for 12 months | $527.50 a month for 120 months |
Rates: 25% and 20% (IRS, Topic No. 409, updated September 24, 2026); in 2026 the 15% rate applies to joint taxable income up to $613,700, and the standard deduction is $32,200 (IRS, Rev. Proc. 2025-32, checked October 14, 2026). In the spread column, taxable income is $150,000 minus $32,200 plus $240,000, or $357,800, under $613,700. The 3.8% applies to MAGI above $250,000 (IRS, NIIT page, updated July 1, 2026). Premiums are from the 2026 tables (SSA POMS HI 01101.020, effective December 2, 2025).
Spreading saves about $134,200 here, but it keeps the couple in a Medicare surcharge tier for ten years instead of one, and note interest is also investment income. The spread column only exists if the installment terms are in the sale before closing.
Red flags
- Your preparer first hears about the sale when the closing statement or Form 1099-S arrives.
- You sign a letter of intent or purchase agreement before anyone has estimated the tax.
- The purchase agreement calls for all cash at closing even though you wanted to spread the gain.
- Sale money is wired to your own account when you meant to do a 1031 exchange.
- Someone suggests giving part of the asset to charity after a buyer has already committed.
- The closing is set for late December without anyone asking whether early January would change the tax year.
- Nobody has pulled your depreciation history on a rental or commercial building.
- No one mentions that the sale could raise Medicare premiums two years later.
- The plan for the 3.8% net investment income tax is to deal with it at filing time.
- You are told an opportunity zone investment can wait until your return is due.
- Advice about the sale is verbal only, with nothing in writing.
- A promoter, not your own tax professional, is the only person explaining the structure.
Questions to ask before you sign
- Can we set up a separate planning meeting before I sign anything, and what will it cost?
- What is my adjusted basis, and how much of the gain comes from past depreciation?
- What would my total federal and state tax be if all the gain lands in one year?
- Would an installment sale help, and what exact wording has to be in the purchase agreement?
- If I am charitably inclined, how early would a gift to a charitable remainder trust have to happen?
- If this is real estate, who will be the qualified intermediary, and when must that be set up?
- Does closing in December or in January change my brackets, the 3.8% tax or my estimated payments?
- How will this sale affect my Medicare premiums two years from now?
- Does any of the gain qualify for the home sale exclusion or another exclusion?
- If I invest in an opportunity zone fund, what is my 180-day deadline and which rules apply to me?
- How much should I set aside or pay in estimated tax so I am not penalized?
- Will you put your recommendation in writing before I sign?
Read This Before You Sign
A one-page checklist: the red flags in annuity and indexed universal life (IUL) sales, and the questions to ask before you sign anything. Questions to ask your CPA before you sign a purchase agreement on a business or property sale. We’ll email it to you.
The Retirement Literacy Foundation is a 501(c)(3) public charity (EIN 41-5062266). General education, not tax, legal or investment advice. Nothing is sold here. Unsubscribe any time.
Sources
- IRS: Rev. Proc. 2025-32, 2026 inflation adjustments (checked October 14, 2026)
- IRS: Topic No. 409, Capital Gains and Losses (updated September 24, 2026)
- IRS: Net Investment Income Tax (updated July 1, 2026)
- IRS: Publication 537 (2025), Installment Sales (checked October 14, 2026)
- eCFR: 26 CFR 1.1031(k)-1, Treatment of deferred exchanges (checked October 14, 2026)
- IRS: Like-Kind Exchanges, Real Estate Tax Tips (updated May 1, 2026)
- IRS: Charitable Remainder Trusts (updated July 27, 2026)
- Caselaw Access Project: Ferguson v. Commissioner, 174 F.3d 997, 9th Cir. (April 7, 1999)
- IRS: Opportunity Zones Frequently Asked Questions (updated September 14, 2026)
- IRS: IR-2026-45, guidance on nominating qualified opportunity zones (April 6, 2026)
- IRS: Topic No. 701, Sale of Your Home (updated October 12, 2026)
- Social Security Administration: POMS HI 01101.020, IRMAA Sliding Scale Tables (December 2, 2025)
The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.