Hello Lykkers, let’s talk about a tax superpower that many real estate investors overlook. You’ve built a portfolio—maybe you own a few rental properties, or you’ve been flipping houses for years. Now it’s time to sell one.

The IRS is waiting for their share of your capital gains. But here’s the lever you can control: choosing which property you sell and making sure every document clearly reflects that choice. When two properties are similar in value but have very different cost bases, the decision of “which one goes” can have a huge impact on your taxable gain.

The Real “Tax Lot” Idea for Property

People often hear about “tax lots” in stocks, where you can choose which shares you sold. Real estate isn’t typically governed by a FIFO rule for deciding which property was sold—the sale is identified by the legal description and parcel in your contract and closing documents.

So the strategy here isn’t “outsmarting a default lot method.” It’s directing the transaction by selecting the asset with the most favorable adjusted basis before you sign and close.

Why Basis Selection Can Save You Money

Imagine you bought Property A in 2010 for $200k and Property B in 2020 for $400k. Both are now worth $500k. If you sell Property A, your gain is roughly $300k. If you sell Property B, your gain is roughly $100k. Same market value, very different taxable outcome—simply because the basis differs.

That’s why smart sellers treat a portfolio like a planning tool: each property has a different purchase price, improvement history, depreciation profile, and potential gain.

The Power Move: Clean Identification + Strong Records

Your biggest advantage is clarity and documentation—especially when your basis depends on years of improvements, depreciation schedules, and closing statements. As a reminder to stay disciplined, Amanda Han states, “The foundation of this is to have good books. If you don’t have good books then you don’t know where your starting point is.”

In practice, that means your paperwork should align—and your files should be audit-ready—long before you close.

Your Action Plan: How to Execute It Cleanly

1. Plan before you list or accept an offer. Decide which property you want to sell based on estimated gain, depreciation history, and your income for the year.

2. Make the contract unambiguous. Ensure the address and legal description clearly match the intended property in the sales agreement and closing package.

3. Maintain a dedicated basis file. Keep the purchase contract, closing statement, and records of capital improvements. If you’ve claimed depreciation, retain the schedules that support it.

4. Coordinate early with a professional. For a major sale, work with a qualified tax professional to ensure the gain, depreciation treatment, and timing are handled correctly.

Caveats You Shouldn’t Ignore

- Depreciation recapture: If you’re selling a rental, depreciation recapture can apply based on what you claimed. This strategy can help optimize capital gain exposure, but recapture is a separate calculation.

- State taxes: Your state rules may differ, and the total bill can change materially depending on where the property sits and where you file.

What This Means for You, Lykkers

Think of your portfolio not just as a set of assets, but as a planning toolkit. Before any sale, map each property’s adjusted basis and rough gain so you can choose the cleanest option for your situation.

Direct the decision. Don’t wing it. And don’t rely on assumptions when the paperwork—and the numbers—need to be precise.