Tax Planning Before You Sell
Selling investment property triggers capital gains tax and depreciation recapture. Plan ahead: depreciation recapture is taxed at 25 percent federally on the accumulated depreciation. Long-term capital gains are taxed at 0, 15, or 20 percent depending on income. New York State taxes the gain as ordinary income. Net investment income tax (3.8 percent) may apply above certain income thresholds.
A 1031 exchange allows you to defer capital gains and depreciation recapture by reinvesting the proceeds into a like-kind property within specific timelines (45 days to identify, 180 days to close). The exchange must be structured through a qualified intermediary — you cannot touch the proceeds. If you are considering a 1031 exchange, begin planning months before listing.
Marketing to Multiple Buyer Types
Residential investment properties attract both investor buyers (who evaluate based on returns) and owner-occupant buyers (who plan to live in the property). Marketing to both audiences maximizes your buyer pool and competition.
For investors: prepare a detailed financial package showing current rent, market rent comparables, operating expenses, vacancy history, cap rate, and cash-on-cash return. For owner-occupants: market the property's livability features — layout, location, condition, and neighborhood. If the property is a multifamily, highlight the house-hacking opportunity (live in one unit, rent the others).
Tenant Considerations When Selling
If the investment property is occupied, existing leases survive the sale. Provide copies of all leases, tenant payment history, and security deposit information. Cooperating tenants who keep units clean and allow showings make the property more attractive.
Manage tenant communication carefully. Give proper notice for showings (24 hours in New York). Consider offering tenants incentives for cooperation — a rent credit or small payment for keeping the unit presentable during the listing period. Hostile or uncooperative tenants can significantly hinder a sale, so investing in their cooperation is worthwhile.