Selling Properties Outright: Accepting Capital Gains Tax Now

Choosing to sell properties and pay capital gains tax immediately preserves flexibility to diversify investments and simplifies portfolio management.

Unrestricted capital is worth something. After paying the tax, you can invest the remaining proceeds anywhere -- stocks, bonds, a different business, or simply hold cash. A 1031 exchange locks you into acquiring like-kind real estate within 180 days, which can force a suboptimal purchase under deadline pressure.

The stepped-up basis strategy. If you plan to hold your properties long-term or until death, your heirs receive a stepped-up basis equal to the property's fair market value at the time of your death. All the capital gains accumulated during your lifetime are effectively erased. This makes 1031 deferral unnecessary for properties you never intend to sell.

Simplicity has value. Every 1031 exchange adds complexity to your tax records, reduces your basis, and creates compliance risk. Selling cleanly and paying the tax keeps your portfolio straightforward and gives your CPA less to track.

The tradeoff: You pay the tax today -- potentially 15-20% federal capital gains plus state taxes and the net investment income tax -- instead of deferring it. If you would have reinvested in real estate anyway, you gave up free leverage from the government.