Selling investment property may trigger a capital gains tax. If you
sell a property you’ve held for many years, one that you have
refinanced several times, the tax may be higher than your cash
proceeds.
Suppose, for example, you bought a small apartment building many
years ago for $50,000. The building is now worth around $500,000.
Because you have continued to borrow against the building as it has
gone up in value, the mortgage has increased to $400,000 and the
building is fully-depreciated.
If you sell this building for $500,000, you might net around $470,000,
after selling costs. If so, you’d have a $470,000 table gain and a
tax bill around $70,000. After paying off the $400,000 mortgage and
any applicable state and local income tax, you’d wind up in the hole
for the deal.
In such a situation, see if you have unrealized losses on any stocks
or stock funds. Taking these losses will provide an offset to some
of the capital gains you’ll recognize from selling your investment
property.