Selling a Dallas Rental Next Year? Talk to a Real Estate CPA Now

If you plan to sell a rental property in 2027, talking with a real estate CPA in Dallas this fall can change how much of the sale you keep. A lot of investors start thinking about taxes after the closing date is set, and by then several of the better options are already off the table. The sale price gets the attention. The tax bill on that sale often gets very little until it arrives. Five things are worth a look before you list: how long you've held the property, depreciation recapture, sale timing, exchange options, and your records.

How Long You Have Owned the Property Matters

Expect the first question to be about your holding period. A rental held for more than one year generally qualifies for long-term capital gains rates. Those rates are usually lower than the ordinary income rates on short-term gains. If your one-year mark falls a few weeks after your ideal listing date, waiting can make a real difference in what you owe.

Texas has no state income tax, so there's no second layer from Austin. Federal tax still applies to the gain, though, and some higher-income sellers may also owe the 3.8% net investment income tax. Knowing where your income is likely to land in the year of the sale is part of the planning.

Depreciation Recapture Surprises a Lot of Sellers

Here's the part many landlords forget. Every year you owned the rental, you were allowed to deduct depreciation on the building. That deduction lowered your taxable income while you held the property. When you sell, the IRS looks back at it.

The portion of your gain tied to that depreciation is generally taxed as unrecaptured Section 1250 gain, at a rate that can reach 25%. This applies even if you didn't claim the depreciation on past returns. The rules are based on what you were allowed to take. Investors who skipped it in earlier years can end up paying recapture on deductions they didn't actually take.

A quick example. Say you bought a rental for $250,000 and $200,000 of that was the building. Residential rentals are depreciated over 27.5 years, so that's roughly $7,270 a year. Nine years in, you have about $65,000 of depreciation, and at a top rate of 25%, the recapture piece alone could run to around $16,000. That number catches people off guard.

A CPA can pull your depreciation history, check it against prior returns, and estimate the recapture before you sign a listing agreement. If something was missed, there may be ways to correct it on an amended return or through an accounting method change, depending on the facts.

Timing the Sale Around the Rest of Your Income

The year you sell can matter as much as the price. A gain stacks on top of your wages, business income, and other investment income. In a year when your other income is high, more of the gain may fall into higher brackets.

Some sellers move the closing from December to January, or the other way around, so the gain lands in a lower-income year. Others look at an installment sale, where the buyer pays over time and the gain is spread across several tax years. Installment sales have their own rules and risks. For one, depreciation recapture is generally taxed in the year of sale, no matter when the payments arrive.

Then there are suspended passive losses. If your rental produced losses you couldn't deduct in earlier years, those losses are often released when you sell the entire property in a taxable sale. That can offset a meaningful part of the gain, but only if the records are in order.

Is a 1031 Exchange Worth It for You?

A Section 1031 exchange lets you defer the gain by rolling the proceeds into another investment property. The deadlines are strict. You generally have 45 days after the sale to identify a replacement property and 180 days to close on it. A qualified intermediary has to hold the funds, so the cash doesn't pass through your hands.

An exchange can make sense if you want to stay invested in real estate and grow your portfolio. It may make less sense if you're trying to simplify, step back from being a landlord, or pull cash out for something else. Deferral isn't the same as forgiveness, and the deferred gain carries into the new property.

And this is the kind of call where it helps to work with someone who handles investor returns all year. The real estate CPA services at Syd The CPA cover investors, agents, and property managers in the Dallas area. That background helps when the choice depends on more than the numbers on one property.

Get Your Records Together Early

All of this gets easier with good records. Before you list, pull together:

• The original closing statement from when you bought the property

• Receipts for major improvements, such as a new roof, HVAC system, or remodel

• Prior tax returns showing depreciation taken each year

• Records of any suspended passive losses carried forward

Improvements add to your cost basis, which can reduce the gain. Routine repairs usually don't. The difference isn't obvious in every case, and a CPA can help sort which receipts count.

Bringing It Together

For a lot of small investors, selling a rental is the biggest tax event they will ever deal with. The holding period, recapture, timing, exchange options, and your paperwork all affect the final number. Most of them are easier to manage months ahead than weeks ahead. If a 2027 sale is on your calendar, Syd The CPA works with Dallas-Fort Worth real estate investors to review these pieces before the property is listed. That way you can plan the sale around your goals instead of reacting to the tax bill afterward. Honestly, the talk goes a lot better before the sign is in the yard.