Real Estate & Rental Properties
For appreciated real estate, the wrong sale can trigger significant capital gains tax. The right structures — including a 1031 exchange for investment property and a QPRT for a personal residence — can defer or reduce that tax while keeping the property doing what you want it to do.
What you should know
- A 1031 exchange allows you to defer capital gains tax when you sell appreciated investment real estate and reinvest in like-kind property — subject to strict identification and closing deadlines.
- The 1031 deadlines are firm — typically 45 days to identify replacement property and 180 days to close. Missing either generally triggers full taxation.
- A Qualified Personal Residence Trust (QPRT) transfers a primary or vacation home to your beneficiaries at a reduced gift-tax value, while you keep the right to live there for a specified term.
- The step-up in basis at death adjusts a property’s basis to its fair market value — generally wiping out the lifetime capital gains your heirs would otherwise owe.
- Rental properties held in an LLC can isolate liability inside the property. Held in personal name, they can expose everything else you own.
What it looks like for one family
The same rental property can expose a family to a lawsuit or stay neatly contained — and can hand heirs a tax bill or none at all.
Held in personal name
Liability and taxes both bite
Bob Caldwell owns a rental in his own name. A tenant’s injury lawsuit reaches his other assets — and because the family sells the property during his life, they owe capital gains tax on decades of appreciation.
Held in an LLC, passed at death
Contained, and the gain resets
The same rental sits in an LLC, so a claim stays inside it. Held until Bob’s death, the property gets a step-up in basis — so the heirs can sell with little or no capital gains tax.
Bob, Peggy, and the Caldwell family are a composite example used to show how the choice plays out — not a real client.
1031 or QPRT — which fits your real-estate situation?
Five short choices. Brent reads your answer back to you at the end.
A 30-second guided quiz. Get a personal read on which tool likely fits.