Questions to Ask Your CPA Before Selling a Rental Property

Short answer

Before selling a rental property, ask your CPA about adjusted basis, depreciation, capital gains, depreciation recapture, state taxes, installment-sale issues, 1031 exchange timing, and what records you need before listing. Do this before you sign a listing agreement or accept an offer. Once the property is under contract, you may still have options, but you have less room to think.

Who this is for

This is for landlords who are considering a sale and want to avoid finding out the tax picture too late. It is also useful if you inherited a property, own through an LLC, have multiple properties, or are considering a 1031 exchange.

Why the CPA call should happen early

Many landlords think the sale process starts with a broker. For pricing, yes. For tax planning, no.

The CPA should help you understand what a sale may actually mean after basis, depreciation, taxes, transaction costs, and possible deferral options. A broker can tell you what the property might sell for. A CPA can help estimate what you may keep after taxes. Those are not the same number.

Questions to ask your CPA

• What is my adjusted basis in this property?
• Do we have the original closing statement?
• What capital improvements have been added to basis?
• How much depreciation has been taken?
• Was depreciation calculated correctly over the years?
• What might depreciation recapture or unrecaptured Section 1250 gain look like?
• What federal capital gains tax may apply?
• What state or local tax may apply?
• Could the 3.8% Net Investment Income Tax apply?
• Would a 1031 exchange be worth considering?
• What are the 45-day and 180-day exchange deadlines?
• Do I need to involve a qualified intermediary before closing?
• What happens if I sell one property but keep others?
• Would selling this year versus next year change anything?
• What records should I gather before listing?

Documents to have ready

Bring the CPA more than a rough purchase price. Bring the purchase closing statement, past tax returns or depreciation schedules, improvement receipts, lease and rent information, property tax bills, mortgage payoff information, and estimated broker/sale costs. If records are missing, say that early. Missing records are easier to deal with before a buyer is waiting.

Common mistakes

• Asking the CPA only after the property is under contract.
• Assuming Zillow equity equals after-tax proceeds.
• Not knowing basis.
• Forgetting depreciation.
• Assuming all improvements were tracked correctly.
• Treating 1031 exchange planning as something that can wait until closing week.
• Letting the sale timeline outrun the tax timeline.

How Hatch can help

Hatch can help you organize the questions and connect the sale conversation with the tax conversation. Hatch does not replace your CPA. The goal is to make sure your CPA is brought in before the sale path is already half-decided.