The direct answer: six legal routes may defer or spread the tax when you sell investment real estate — a 1031 exchange, a 1031 into a DST, the 721 path, an opportunity-zone fund, an installment sale, and a charitable remainder trust. They differ in what gets deferred, what you must do, and how the deferral ends — and this guide puts all six in one table before walking each.
Sell an appreciated rental outright and up to four taxes may arrive together: federal capital gains on the appreciation; depreciation recapture on every dollar of depreciation taken, at its own higher rate (the one sellers forget); the net investment income tax where it applies; and state income tax. The combined figure is knowable in advance — our calculators produce a working estimate — and knowing it is what makes every comparison below meaningful: deferral strategies have costs, and they only earn their keep against a real number.
| Route | What may be deferred | You must… | Liquidity | How it ends |
|---|---|---|---|---|
| 1031 → property | Capital gains + recapture1 | Buy equal/greater real estate in 45/180 days | Low (you own a building) | Taxable sale, another 1031, or step-up at death |
| 1031 → DST | Capital gains + recapture1,2 | Same deadlines; accredited only | Very low until trust exit | Trust sells → exchange again, 721, or cash out |
| 721 path | Gain continues deferring3 | Hold OP units; no more 1031s after | Redemption program, capped | Taxable redemption or step-up at death |
| OZ fund | The gain you invest, to a statutory date4 | Invest the gain within 180 days of sale | Low; 10-yr horizon for full benefit | Deferred gain comes due on the statutory date; 10-yr appreciation may be excluded |
| Installment sale | Gain spread over payments5 | Carry financing for your buyer | A note, not cash | Tax as payments arrive; recapture generally due up front |
| CRT | Gain on sale inside trust6 | Irrevocably donate remainder interest | Income stream, not principal | Income taxed as received; remainder to charity |
The workhorse: full deferral of gains and recapture, by buying more investment real estate on the clock. The complete walkthrough is What Is a 1031 Exchange? — the short version is two deadlines, a qualified intermediary, and discipline.
Same tax mechanics, passive destination: fractional interests in institutional property that close in days and end the landlord years. Accredited investors only; illiquid; sponsor-dependent — the full structure.
Property or DST interests convert into a REIT operating partnership’s units: deferral continues, diversification may improve, and the 1031 chain ends permanently — units can’t exchange again, and liquidity runs through a capped redemption program. The trade, both sides: The 721 Exit, Honestly.3
Different machinery: you sell, keep the basis, and invest just the gain in a qualified opportunity fund within 180 days. The deferred gain comes due on a statutory date regardless; the prize is potential exclusion of the fund investment’s own appreciation after ten years.4 Rules and timelines in the OZ guide.
Carry financing for your buyer and recognize gain as payments arrive, spreading the bracket impact across years. Caveats earn attention: depreciation recapture is generally taxable in the year of sale regardless, and your “liquidity” is a note secured by a property you no longer control.5
A charitable remainder trust may sell appreciated property without immediate gain recognition, pay you an income stream for years, and leave the remainder to charity — philanthropy with planning attached, and strings worth reading twice: Giving With a Return Address.6
The routes are not mutually exclusive, and the combinations do real work:
Four questions sort most situations: Do you want to own more real estate, actively or passively? (Yes → 1031, direct or DST.) Do you need the money itself? (The routes defer tax, not spending.) Is income the goal? (Installment and CRT structures are income machines with different endings.) And what is your horizon — because under current law the longest-horizon answer, holding deferred positions until death, may convert deferral into elimination for heirs via the basis step-up: the estate exit. Contact our team to discuss whether any of these strategies may be appropriate for your circumstances.
This guide is educational and is not tax or legal advice; consult your own tax and legal advisors about your specific situation. Qualified investors may be able to utilize the deferral strategies discussed under current law; not all investors will be able to utilize these benefits. Tax laws are subject to change and future legislation could affect the availability or benefits of Section 1031 exchanges and basis step-up provisions. Section 1031 exchanges defer — they do not eliminate — capital gains and depreciation recapture taxes. Investments discussed may be speculative, illiquid, and involve a high degree of risk, including the possible loss of principal. Such investments are generally available only to qualified or accredited investors. Securities are offered through Realta Equities, Inc., Member FINRA/SIPC, and investment advisory services are offered through Realta Investment Advisors, Inc., co-located at 1201 N. Orange Street, Suite 729, Wilmington, DE 19801. Neither Realta Equities, Inc. nor Realta Investment Advisors, Inc. is affiliated with Carmona Wealth.
