Selling an LA Apartment Building at Year-End: Tax Timing and 2026 Planning
Important note
This article is general information current as of September 2026, not tax, legal, or financial advice. Federal and California tax rules, rates, and thresholds change and are highly dependent on individual circumstances. Confirm your specific tax liability and exchange timeline with a qualified CPA, tax attorney, or qualified intermediary before making any decision about when to sell. Max Berger is a licensed real estate professional, not a tax advisor or attorney, and this article does not constitute tax, legal, or financial advice.
Selling before or after December 31 doesn't change how much tax you ultimately owe on a gain; it changes which tax year that liability lands in, and which other income it stacks on top of. The mechanics that actually matter: depreciation recapture is taxed separately from your appreciation gain and caps at 25% federally, California taxes the entire gain as ordinary income at up to 13.3% with no long-term discount, and if you're planning a 1031 exchange on a sale that closes in the fourth quarter, your 180-day exchange window can get cut short by your tax filing deadline unless you file for an extension. None of this is a reason to rush or delay a sale by itself. It's the information you need before you decide.
California taxes the entire gain as ordinary income at up to 13.3% with no long-term discount, and if you’re planning a 1031 exchange on a sale that closes in the fourth quarter, your 180-day exchange window can get cut short by your tax filing deadline unless you file for an extension. None of this is a reason to rush or delay a sale by itself. It’s the information you need before you decide.If you’re weighing whether to list before year-end or wait, whether your building sits inMid-City or anywhere else across LA, the honest answer is that the calendar matters less than your specific gain, your other income this year versus next, and whether you’re exchanging or cashing out. Here’s what actually drives that decision.
Step 1: Separate Your Depreciation Recapture From Your Appreciation Gain
Your total gain on sale isn’t taxed as one number. It splits into two pieces that the IRS treats differently. The portion of your gain equal to the depreciation you’ve claimed over the years, known as unrecaptured Section 1250 gain, is capped at a maximum 25% federal rate. The remaining gain, the actual appreciation above your original basis, gets standard long-term capital gains treatment: 0%, 15%, or 20% depending on your total taxable income for the year, per theIRS’s 2026 inflation-adjusted brackets. For 2026, the 20% bracket starts at $545,500 of taxable income for single filers and $613,700 for married filing jointly. High earners also owe the 3.8% Net Investment Income Tax on top of whichever rate applies, once modified adjusted gross income clears $200,000 for single filers or $ 250,000 for married filers.
If you or a prior owner ran a cost segregation study and claimed bonus depreciation on components of the building, appliances, carpeting, certain electrical and plumbing elements, that portion falls under Section 1245, not Section 1250, and it’s taxed as ordinary income on sale, not capped at 25%. This matters more than it used to. The One Big Beautiful Bill Act, signed in July 2025, permanently restored 100% first-year bonus depreciation for qualifying property placed in service after January 19, 2025, which has made cost segregation more common on recent acquisitions and renovations. If that applies to your building, get your accountant to break out exactly how much of your accumulated depreciation falls into each bucket before you model your tax bill, since the two buckets are taxed very differently.
Step 3: California Taxes the Whole Gain as Ordinary Income
This is the piece out-of-state sellers, and even some longtime California owners, underestimate. Unlike the federal system,California does not provide a preferential rate for capital gains: your entire gain, appreciation and recapture alike, is taxed at the same graduated rates that apply to your wages, up to a top marginal rate of 13.3% (the 12.3% top bracket plus the 1% Mental Health Services Tax on taxable income above $1,000,000). There’s no one-year holding period discount at the state level the way there is federally. A large gain landing in the same year as a strong income year from your other business or wages pushes more of it into that top bracket.
Gain Component
Amount
Federal Rate
Federal Tax
California Rate (up to)
CA Tax (up to)
Unrecaptured Section 1250 gain
$800,000
25% (capped)
$200,000
13.3%
$106,400
Remaining appreciation gain
$1,000,000
20% + 3.8% NIIT
$238,000
13.3%
$133,000
Total
$1,800,000
—
$438,000
—
$239,400
Figures are illustrative, based on a hypothetical $1.8 million total gain for a top-bracket seller, to show how the pieces stack. Your actual liability depends on your basis, your accumulated depreciation, your other income for the year, and your specific tax situation. This is not a substitute for a projection from your CPA.
Step 4: If You’re Doing a 1031 Exchange, Q4 Timing Works Against You
This is the detail most general tax-timing content misses entirely, and it’s the one that matters most if you’re planning to defer through a like-kind exchange. UnderIRC Section 1031(a)(3), you have 45 days from closing to identify replacement property and 180 days to close on it, but that 180-day window is actually capped at the earlier of 180 days or the due date of your federal tax return for the year of sale, including extensions. For most individual sellers, that return is due April 15. Sell in mid-October or later, and the standard April 15 deadline arrives before your full 180 days would otherwise run out, shortening your actual exchange window.The fix is straightforward: file Form 4868, the automatic extension request, before April 15 of the following year. That pushes your return deadline to October 15 and restores your full 180-day window. It’s automatic and doesn’t require IRS approval, but it has to actually get filed; sellers who assume they automatically have 180 days regardless of when they sold are the ones who find out too late that they didn’t.One more California-specific wrinkle: if you 1031 exchange out of a California property into a replacement property located outside the state, California requires you to file FTB Form 3840 annually to track that deferred California-source gain until it’s eventually recognized. Skipping this doesn’t erase the liability; it just creates a compliance problem down the line.
Talk to Max About Listing Your Building
Every year-end sale has a different set of moving pieces: your basis, your depreciation history, whether you’re exchanging.Let Max help you sell your LA apartment building with a timeline that actually fits your tax and exchange deadlines.
Step 5: An Installment Sale Spreads Some of the Gain, Not All of It
An installment sale, taking payments over multiple years instead of a lump sum at closing, can spread your appreciation gain and your unrecaptured Section 1250 gain across the years you actually receive payments, which can help manage which tax bracket each year’s income lands in. What it can’t do: defer Section 1245 recapture. Under IRC Section 453(i), if any part of your depreciation recapture is Section 1245 ordinary income from cost-segregated personal property components, that portion has to be recognized in full in the year of sale regardless of when you actually receive the cash. A seller expecting to spread their entire tax bill over several years can be surprised by a real bill due in the first year that exceeds what they actually collected in year one.The tax picture looks different depending on what you’re actually selling. A10-unit building in East Whittier that hadn’t traded in 30 years closed at $2,750,000, the kind of long hold where depreciation recapture drives most of the tax conversation. Afour-unit Pasadena property that closed at $1,575,000 with one unit delivered vacant sold to an FHA owner-occupant buyer instead, a smaller hold with a smaller recapture number and a much faster path to close. Same broker, same year, two very different tax conversations.
Step 6: Decide What Actually Changes for You
Selling on December 28 instead of January 5 doesn’t lower your tax rate. What it does is determine which calendar year your gain lands in, which matters if this year’s income is unusually high or low compared to next year’s, whether you want the full 180-day 1031 window without needing to file an extension, and how much runway you have to structure an installment sale or line up a qualified intermediary properly instead of rushing the paperwork. Those are real, legitimate reasons to think about timing. “Year-end” itself isn’t magic.
Working Through Timing With Someone Who Sees This Every Year
Year-end tax timing on a multifamily sale touches real estate strategy, federal tax law, and California-specific rules all at once. Max Berger has spent over a decade helping Los Angeles apartment owners coordinate a sale timeline with their broader financial picture, working alongside each seller’s own CPA and qualified intermediary rather than around them.Ready to talk through your specific timeline?Book a call to discuss your building and your options.
Get a Free Valuation Before You Decide on Timing
Knowing what your building is actually worth today is the starting point for any tax conversation with your CPA. Request a free, no-obligation valuation to get real numbers to work from.
It depends on your specific gain, your other income in the current year versus next year, and whether you're planning a 1031 exchange. There's no universal rule that selling before December 31 reduces your total tax bill; it primarily determines which tax year absorbs the gain. A CPA who can see your full financial picture is better positioned to answer this than a general rule of thumb.
The sale date determines which tax year your gain is reported in and which rate brackets it stacks against, both federally and in California. A large gain landing in a high-income year pushes more of it into higher brackets than the same gain in a lower-income year. Timing doesn't change the character of the gain, appreciation versus depreciation recapture, only which year's tax return reports it.
Your 45-day identification period and 180-day exchange period both still apply, but the 180 days is capped at the due date of your tax return, including extensions, if that date comes sooner. For sales after mid-October, this often means your effective window is shorter than 180 days unless you file Form 4868 to extend your tax return deadline to October 15 of the following year.
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Max Berger advises Los Angeles apartment building owners on sales, 1031 exchanges, and estate dispositions, with more than 75 transactions totaling over $300M closed across Northeast LA, Hollywood, and South LA.
