Year-End Checklist for Landlords Planning a 2027 Sale

If you plan to sell a rental in 2027, December 2026 is the month to settle this year’s taxes, pull together the records a sale will need, and decide whether the sale will be taxable or a section 1031 exchange. The dates that matter are the January 15, 2027 estimated-tax installment, the 45-day and 180-day exchange clocks that start the day you close, and the two-year lookback the regulations use to decide who may act as your qualified intermediary. Here is the checklist, in order.

1. Make the January 15, 2027 estimated payment if 2026 income needs it

The fourth 2026 estimated-tax installment is due January 15, 2027, per the 2026 Form 1040-ES. The form’s general rule: you must pay estimated tax if you expect to owe at least $1,000 for 2026 after withholding and credits, and you avoid the underpayment penalty by paying the smaller of 90% of your 2026 tax or 100% of your 2025 tax. If your 2025 adjusted gross income was more than $150,000 ($75,000 if married filing separately), the prior-year figure is 110% instead of 100%.

This matters most if you already sold something in 2026, or if a tenant buyout, insurance recovery or large rent increase changed your income. If your 2027 sale will be taxable, the same rule applies next year, and the tax on a 2027 closing is due with the installment for that quarter, not at filing. The planned page on estimated tax after a rental sale walks through the quarter-by-quarter math.

2. Assemble the basis file before you talk to a broker

Every number in a sale or exchange starts from adjusted basis, and the IRS expects you to keep property records until the period of limitations runs out for the year you dispose of the property. For property acquired in a nontaxable exchange, the IRS says to keep records on the old property and the new property until the period of limitations expires for the year in which you dispose of the new property (IRS, How long should I keep records?). Pull together:

• The closing statement from your purchase, plus any Form 8824 if you acquired the property in an exchange.
• Capital improvements with dates and invoices.
• The depreciation schedule from every return, so you know the accumulated depreciation that becomes unrecaptured section 1250 gain.
• Loan statements showing the current balance, because debt relief counts in the exchange math.

If the depreciation schedule is incomplete, say so to your CPA now. The guide to calculating adjusted basis on a rental lists what goes in and what stays out.

3. Project the tax on a taxable sale using 2026 figures

For taxable years beginning in 2026, Rev. Proc. 2025-32 sets the long-term capital gain 0% band at $98,900 for joint filers ($49,450 single) and the 15% band through $613,700 joint ($545,500 single); gain above that is taxed at 20%. Unrecaptured section 1250 gain is taxed at up to 25% under section 1(h)(1)(E), and the 3.8% net investment income tax applies above $250,000 of modified adjusted gross income for joint filers and $200,000 for single filers under section 1411.

Hypothetical, round numbers: a couple bought a rental for $400,000, took $150,000 of depreciation, and expects to sell for $900,000 net of costs. Gain is $650,000. The $150,000 of depreciation is taxed at up to 25% ($37,500), the remaining $500,000 at 15% if their other income keeps them inside the band ($75,000), and the net investment income tax adds 3.8% of the gain above the threshold, up to $24,700. That is roughly $137,000 of federal tax before state tax. Run your own numbers with your CPA; the 2027 figures will differ once the IRS publishes next year’s revenue procedure.

The pages on depreciation recapture when you sell a rental and how much tax you owe without a 1031 show the full ordering.

4. Decide: taxable sale, exchange, or a mix

With the projection in hand, the decision is concrete. A full exchange defers the whole figure above as long as you buy replacement property of equal or greater value and reinvest all of the equity. A partial exchange, where you take some cash as boot, defers the rest. The pre-sale checklist for a 1031 covers the equity and debt tests, and what a 1031 exchange is covers the basics.

5. Choose a qualified intermediary now, not at closing

Reg. section 1.1031(k)-1(k) says a “disqualified person” cannot serve as your intermediary. That includes anyone who has acted as your employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the two-year period ending on the date you transfer the first relinquished property, with exceptions only for services with respect to exchanges and for routine financial, title insurance, escrow or trust services. It also includes persons related to you under section 267(b) or 707(b) with 10 percent substituted for 50 percent.

Two practical results. First, your long-time CPA or real estate attorney cannot be the intermediary, and neither can a company they control. Second, the exchange agreement has to exist before you close, because under paragraph (g)(6) the agreement must expressly limit your right to receive, pledge, borrow or otherwise obtain the benefits of the sale proceeds until the exchange period ends. Vet the intermediary in December so the agreement is ready when a buyer appears. The guide to choosing a qualified intermediary lists the questions to ask, including how funds are held.

6. Check your state’s closing paperwork

Many states withhold at closing on nonresident sellers and require an exemption form for exchanges days before closing. Find your state on the state-by-state 1031 pages and read state withholding at closing in a 1031.

7. Plan the closing date around the calendar

Under section 1031(a)(3), replacement property must be received by the earlier of 180 days after the transfer or the due date, including extensions, of your return for the year of transfer. A 2027 sale that closes in mid-October or later runs past the following April 15 unless you file for an extension; the tax-year straddle guide explains how to keep the full 180 days.

What to do now

1. Pay the January 15, 2027 installment if 2026 income requires it, using the 2026 Form 1040-ES worksheet.
2. Build the basis file and a one-page gain projection with your CPA using the 2026 figures above.
3. Interview intermediaries in December and confirm none is a disqualified person under the two-year rule.
4. If replacement options are uncertain, read about using a DST as a backup identification, then start a conversation before you list.

We broker 1031 exchanges, are licensed in every state under a regulated broker-dealer framework, and have placed over a billion dollars with vetted national DST sponsors across more than twenty years.

Sources

• IRS, 2026 Form 1040-ES, Estimated Tax for Individuals
• IRS, How long should I keep records?
• IRS, Rev. Proc. 2025-32 (2026 inflation adjustments)
• 26 U.S.C. section 1(h), tax on capital gains
• 26 U.S.C. section 1411, net investment income tax
• 26 U.S.C. section 1031
• Reg. section 1.1031(k)-1, deferred exchanges