Fundamento

How do I minimize tax on real estate?

You're selling an appreciated investment property. Three paths: pay the tax now, 1031-exchange into another property, or roll the gain into a Qualified Opportunity Fund. Same numbers, three very different outcomes.

The sale
Your tax situation
Comparison assumptions — applied to all three paths
Saved scenarios sync to your dashboard.

Three tax paths, same numbers

Net sale $845,000 $900,000 − $55,000 costs
Total gain $395,000 net sale − basis $450,000
Depreciation recapture $120,000 taxed at up to 25% federal
Long-term cap gain $275,000 taxed at 28.8% combined

Path 1 · Pay tax now, take cash

$1,224,649
  • Net sale proceeds: $845,000
  • − Mortgage payoff: $0
  • − Depreciation recapture tax: $40,560 (at 33.8%)
  • − Capital gains tax: $79,200 (at 28.8%)
  • = Cash in hand today: $725,240
  • Grown at 7.0%/yr for 10 yrs: $1,426,657
  • − Tax on that growth at exit: $202,008
  • After-tax value at year 10: $1,224,649
  • In today's dollars: $622,549

Path 2 · 1031 exchange (defer all tax)

$1,307,117
  • Reinvested as equity (after payoff): $845,000
  • Tax deferred (not eliminated): $119,760
  • If held to death → stepped-up basis → tax disappears for heirs
  • Grown at 7.0%/yr for 10 yrs: $1,662,243
  • − Deferred tax paid at exit: $119,760
  • − Tax on new appreciation at exit: $235,366
  • After-tax value at year 10: $1,307,117
  • In today's dollars: $664,472

Path 3 · Qualified Opportunity Fund Pro

Full QOF modeling with growth projection, 10-year step-up, and rural-vs-non-rural comparison is included on the Pro tier.

How to read this: Three paths, three different bets. Cash now is certainty. The 1031 compounds a bigger base, but the deferred tax survives inside the property — and full deferral assumes replacement debt equal or greater than the $0 paid off. The QOF trades liquidity for a shot at tax-free appreciation after 10 years. All three end-states use the same 7.0%/yr growth, the same 10-year horizon, and the same terminal event — a taxable sale at year 10 — so the after-tax values are genuinely comparable; they still differ in liquidity and risk. This tool sizes the choice; it doesn't make it. Model the finalists with your CPA before you sign anything.

If you pursue the 1031

Start your 1031 with a qualified intermediary Funds in segregated FDIC accounts; 24–48hr setup. Partner link — Fundamento may be compensated. Partners have no bearing on the directory or on which firms are vetted.
Reality check: 1031 exchanges have rigid timelines (45/180 days) and require a Qualified Intermediary — set up before you close. QOFs are securities transactions with sponsor risk and reduced liquidity. A 30-minute call with a real estate CPA before the closing date can save you from a five- or six-figure mistake.
Need to actually execute this?

Premier members get integrated access to: 1031 and cost-segregation modeling built into the flow, with the criteria for choosing a qualified intermediary and an ASCSP-certified firm. Our directory of real-estate-specialist CPAs and attorneys is free for every tier, and you contact each firm directly — for entity structuring and decisions on OZ Funds.

See Premier tier

What this calculator doesn't model

Read these next in the Library

1031 exchange — defer the tax forever (or until death)

The mechanics, the 45/180 day windows, and how it chains with step-up at death.

Opportunity Zones (OZ 2.0) — now permanent

What the OBBB Act (July 2025) changed, and the rural QROF enhancements.

Step-up in basis at death

The most underused estate strategy. Combined with 1031, it eliminates lifetime gains entirely.

Cost segregation — accelerate depreciation

Reclassifies 20–30% of basis into shorter-life buckets; worth a $3K–$10K study on properties over $500K.
How the math works (plain English)

When you sell an investment property, two things get taxed. Capital gain is the price above your basis — taxed at long-term rates (15% or 20% federal, plus state, plus 3.8% NIIT if you're high-earning). Depreciation recapture is the depreciation you wrote off over the years — it comes back as ordinary income, capped at 25% federal.

A 1031 exchange (IRC §1031) defers all of that tax if you reinvest the entire proceeds into "like-kind" real estate. Strict timing: 45 days to identify the next property; 180 days to close. Most serious rental investors trade up through 1031s for decades, then hold until death — at which point heirs get a stepped-up basis and the embedded gain disappears entirely.

A Qualified Opportunity Fund defers the original gain until 2026 (now extended/permanent under the OBBB Act of July 2025), and — this is the powerful part — any appreciation on the QOF itself is tax-free if you hold for 10+ years. The first new round of QOZ designations under the OBBB takes effect Jan 1, 2027.

These are real money decisions. Use this to size the choice and narrow the conversation — then run the final structure past a CPA and a real estate attorney before you sign anything.