Updated August 17, 2026
Most of the tax planning available on a Los Angeles apartment building sale expires the moment you accept an offer. Nearly all of it expires at closing. Sellers who call their CPA when escrow opens are asking for a calculation; sellers who call before listing are asking for options — and on a long-held building with a basis near zero, the difference between those two conversations is frequently six figures.
This is the sequence, and it is worth following in order.
Before deciding anything, get the number. On a building held for decades it is larger than owners expect, because it arrives in layers:
Until you have that total against a realistic sale price, every other decision is being made blind.
Your taxable gain is the amount realized minus your adjusted basis. Basis goes up with capital improvements over the entire hold period, and almost every long-term owner has undercounted them.
Thirty years of a new roof, a repipe, electrical upgrades, seismic work, window replacement, a rebuilt garage, sewer line replacement. Every one of those, properly capitalised, reduces the gain.
Where to find them when the invoices are gone:
I have watched sellers add hundreds of thousands to basis from a folder they nearly threw away. Do this before you list, because doing it during escrow means doing it badly under time pressure.
This is where planning either happens or does not, because most of these choices cannot be made retroactively.
A 1031 exchange has to be set up before closing. The qualified intermediary must be engaged and the proceeds must never touch your hands. A seller who closes and then decides to exchange has simply had a taxable sale.
Replacement search starts before listing, not after. The 45-day identification clock runs from your closing. Sellers who begin looking afterwards routinely buy under pressure — and buying badly to defer tax is a poor trade.
Partial exchanges, boot and debt replacement need modelling in advance. Trading a leveraged LA building for a lower-leverage replacement creates mortgage boot even if every dollar of equity is reinvested. That surprises people.
Installment sales spread the gain but generally do not defer depreciation recapture, which is recognised in the year of sale. On a low down payment that can produce a year where the tax owed exceeds the cash received.
Charitable structures — a charitable remainder trust and similar vehicles — must be established well before the sale is under contract. Attempted afterwards, they fail on assignment-of-income grounds.
Entity and title questions. How title is held affects the treatment, who the taxpayer is for an exchange, and what happens on a co-owner buyout. Sorting this out mid-escrow is expensive and sometimes impossible.
For an older owner, these two decisions are one decision.
Holding until death generally gives heirs a stepped-up basis, largely eliminating the income tax on everything above. But Proposition 19 reassesses the property tax on transfer to children, landing a much larger bill on a rent-capped income stream.
For a married couple, California's community property treatment can adjust the basis of the entire property on the first death rather than half — a materially larger benefit than separate-property states offer, and one that depends on how title is characterised. That is worth confirming rather than assuming.
The full comparison lives in sell now vs. hold for the step-up. The point here is that it belongs in the same meeting as the sale planning, not a separate one two years later.
Some timing levers are real and all of them require lead time.
Which tax year the gain lands in, and what else is in that year — other income, other losses, a retirement event.
Suspended passive losses. Many long-term owners have accumulated passive activity losses they could not use. A fully taxable disposition of the activity can free them, which is an argument that sometimes cuts against exchanging. Your CPA should run this explicitly — it is regularly overlooked.
Cost segregation, if you have not done one and are not selling immediately.
Charitable giving timing, if you are inclined that way and want it to offset.
Your CPA — first, before the listing. They compute the exposure, reconstruct basis and model the structures.
A real estate attorney — before you sign anything. Entity questions, title, and the purchase agreement's representations.
A qualified intermediary — before closing, if any exchange is possible. Engaging one costs little and preserves the option.
An estate attorney — if you are over sixty or the building is destined for children. Same meeting as the CPA, not a separate track.
Your broker — to supply the number everything else runs on. None of the above can work without a realistic, defensible sale price and a net proceeds model. That is the input, and it is the one families most often lack.
Worth stating plainly, because these are the calls I see missed:
Every one of those is avoidable with a conversation that happens before the sign goes up.
When should I call my CPA?
Before you list. Not when escrow opens. The options that save money are the ones that require lead time, and by the time there is an accepted offer most of them have closed.
Is a 1031 exchange always the right answer?
No. It defers rather than eliminates, it forces a purchase on a clock, and if you have suspended passive losses a taxable sale may be better. It is a good answer often enough that it deserves modelling, and not so often that it should be assumed.
Can I reduce Measure ULA?
Not through basis, an exchange or a loss — it applies to gross consideration. What changes exposure is jurisdiction and price relative to the thresholds, which is a pricing decision made before marketing.
What if I've already accepted an offer?
There is still work worth doing — basis reconstruction, withholding elections, and confirming the exchange mechanics if one is intended. The structural choices are mostly gone, but the calculation ones are not. Call your CPA today rather than at filing.
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