A California rental sale can carry four different taxes at once, capital gains, depreciation recapture, the 3.8% NIIT, and California's 13.3% rate. Here's how to legally defer and soften each one.
A plain-English guide for sellers: how a structured installment sale defers the tax when you sell a business, practice, or property — the math, the alternatives, and how to know if your deal fits.
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📞 Hans Goldstein · 213-290-4977 · CA Insurance License #4322192 · Independent §453 specialist · Goldstein & Co. LLC
Selling a California rental property is rarely the clean capital gain owners expect. Four separate taxes can land on the same sale, and California is the highest-tax state in the country. Here's the full picture, and how to keep more of it.
If you want to keep owning real estate, a 1031 may fit. If you want out, or can't find a replacement, a structured installment sale spreads the capital-gain portion across years and gives you guaranteed income. Either way, the move is to plan before you list.
You can defer it with a 1031 exchange (requires buying a replacement property) or a structured installment sale under IRC §453 (spreads the gain over years with no replacement needed). California taxes the gain as ordinary income up to 13.3%, so deferral is especially valuable.
Yes. The depreciation you deducted over the years is recaptured at sale, the straight-line portion is unrecaptured §1250 gain, taxed up to 25% federally. California taxes it as ordinary income with no 25% cap.
Generally no, recapture is recognized in the year of sale even under the installment method. A structured installment sale mainly spreads the capital-gain portion of the sale, so the recapture should be planned for separately.
A 1031 defers tax only if you reinvest in another like-kind property within strict deadlines. A structured installment sale spreads the gain over years without buying anything, better if you want to exit real estate entirely.
Potentially four layers: up to 20% federal capital gains, up to 25% recapture on prior depreciation, the 3.8% NIIT, and California ordinary tax up to 13.3%. The combined bite can approach or exceed a third of the gain, which is why deferral planning matters.
Before you sign anything, run your numbers with someone who structures the deal to be tax-smart and audit-ready from day one.
Call 213-340-2018 Run the Numbers →