should I sell NOW to avoid taxes or hold it for appreciation?

Question

hi all

I would love to get some perspective from your expertise, we have a property that we would have to sell in 2025 to avoid paying taxes on the capital gains, we believe we can sell it for $700K and get an equity of almost $500K after paying the mortgage balance, if we invest all of it option in index funds at 7% rate (standard com growth calculator), or in more rental properties as we are all here for, I can get the equity of around $900K.

option B would be keep paying the house at 2.3% int rate while we have it in AirBnB and maybe sell it in 10 years for $900K, knowing that we would be paying taxes but it is not that bad still. or we can 1031 at that point?

What would you do? am I missing something? thanks everyone

Theresa Harris · Answer

I would sell it and use that money to either buy a rental property or invest elsewhere. Yes if you hold it long term (really long term), you may get back the same amount that you would have received by not paying capital gains, but you have to hold it long term AND have the house appreciate.  You will have holding costs along the way with repairs, maintenance, taxes, etc.

Ashish Acharya · Answer

@Edgar Duarte Selling now under the primary residence exclusion avoids capital gains taxes, allowing you to reinvest the $500K equity in diversified assets like index funds or additional rental properties. At a 7% annual return, this could grow to $908K after 10 years, providing immediate liquidity and diversification.

Alternatively, holding the property could yield $825K net equity after taxes in 10 years, assuming a $900K sale, with the potential to defer taxes via a 1031 exchange if reinvested into another property. Additionally, Airbnb income during this period could generate steady cash flow, though market conditions and regulatory risks should be considered. Selling now prioritizes liquidity and growth opportunities, while holding benefits from long-term appreciation and rental income.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Alecia Loveless · Answer

@Edgar Duarte Depends on if you prefer owning real estate or want to be invested in the stock market.

In my situation if I’m earning $18,000 in cash flow from a property my tax benefits are offsetting at least that amount and I’m still paying $0 in taxes so the real estate scenario is attractive to me.

Personally I’ve got the majority of my assets in real estate. This is a real estate group so I’d assume a lot of people own a lot of real estate.

I’m trying to diversify some and build my Retirement Accounts with some stocks. However I can leverage 80% or more of my real estate to create massive holdings which I can’t do with stocks.

If you net a $300,000 profit from the sale of your current you could in theory invest in a $1.5MM property. That’s the power of leverage.

Randall Alan · Answer

@Edgar Duarte

I would suggest you research “return on equity”.  I’m a long term rental guy, so make less than an Airbnb type operation on cash-flow .  But let’s say you selling it would net $500,000.  For me, if I make $1500 net per month on a free and clear property I would make $18,000 / year.  But if I sell it and put that money in the stock market and earn let’s say 8% I would make $40,000 on the same money.  Even if I take the 15% tax hit I would make $32,000/ year on the remaining $400,000.    So return on equity would suggest it’s much more advantageous for me to sell it.

You can run the same scenario accounting for the tax hit if you kept it past the 2 of 5 year time frame I presume you are referencing.

The other option for you would be to borrow against the equity in the property.  You avoid the tax hit, and still get the use of 75% of the equity if you do a cash out refi - (but high interest rates sort of play against that to some degree presently… but you could alway refi again down the line if rates dropped.

Randy