She must use the proceeds of the sale to purchase new real estate.If she moved from that house in the last three years it is possible she could have some tax relief as part of the exclusion of sec 121 but I'm sure the accountant looked at the dates and calculated that she had been gone for too long.She absolutely could have done a 1031 exchange to purchase new rental property and continued to defer the tax until death.  

A change allowing use of the same tax rates as is used for long term capital gains rates for qualified dividends was made with the Jobs and Growth Tax Relief Reconciliation Act of 2003.[1] Qualified dividends are dividends paid by domestic corporations or by corporations from foreign countries that have a tax treaty with the United States.

@Rachel LeonardThanks :)Big relief.

The owner of the property is highly motivated to sell, tired of dealing with his tenants, heading to foreclosure and looking for debt relief.

In its complaint, the agency also names Deucher's wife, Jessica Deucher, 43, as a relief defendant and alleges she received more than $376,000 in investor funds from her husband despite having "no legitimate claim" to the money."

A few things:1) In Tennessee, A judicial state, it is unlikely a judge is going to award you the lease balance as relief for the the tenant breaking the lease.

@Eric S.I haven't looked into this kind of thing in detail recently, so be sure to fact check it...But my recollection is that debt relief in a 1031 exchange is considered "boot" and subject to taxation.

There is relief!

Jon Holdman is correct, except you will still qualify for the tax relief, even if you have a new home, as long as the loans were to Buy the first home(not cash out) and you haven't rented it since you moved out.

But consider the potential gains: relief, time and comfort.?!?!!!