The Sell-vs-Hold Decision — What the Tax Consequences Actually Are
The most expensive mistake a retiring real estate investor makes is selling a property without understanding what the tax bill will be. The second most expensive mistake is holding a property and dying — which eliminates that tax bill entirely for your heirs.
When you sell a rental property you have held for years, you owe two separate taxes. First, unrecaptured Section 1250 gain — the IRS taxes all depreciation you have taken on the property at a flat 25% federal rate, regardless of your income bracket. On a property you have depreciated for 20 years, this number can be substantial. Second, state capital gains in Georgia — Georgia taxes capital gains at a flat 5.39% rate (as of 2026). There is no exclusion for rental property the way there is for a primary residence.
When you die holding the property, your heirs receive a step-up in basis to the fair market value at the date of death under IRC § 1014. All of the depreciation recapture disappears. All of the capital gains disappear. Your heirs can sell the next day and owe nothing in federal depreciation recapture or Georgia capital gains tax on any appreciation that occurred during your lifetime.
On a $500,000 property with a $100,000 adjusted basis after 20 years of depreciation, the federal + Georgia tax bill on a sale during your lifetime could exceed $120,000. The tax bill if your heirs sell after inheriting it with a stepped-up basis: zero.
This does not mean you should never sell. It means every sell decision should be made with a tax advisor who has run the step-up calculation, not from a gut sense that it is time to simplify the portfolio.
What Happens If You Become Incapacitated Before You Retire
Incapacity before death is the planning scenario most retiring investors have not thought through. If you have a stroke or dementia diagnosis at 68, your portfolio does not manage itself.
Without a durable power of attorney and a properly funded trust, your family must go to Georgia probate court to establish a conservatorship before they can touch any property you own. A conservatorship proceeding in Georgia takes 3 to 6 months, requires an attorney, produces annual court accountings for as long as you are alive, and gives a court-appointed judge authority over decisions about your portfolio.
A funded revocable trust eliminates this. The successor trustee steps in immediately when you become incapacitated — no court, no waiting, no accounting to a judge. Your trust document specifies exactly what the trustee can do: collect rent, pay mortgages, hire managers, refinance, sell properties. Your durable power of attorney covers financial decisions outside the trust (bank accounts, tax returns, anything not titled in the trust).
For the specifics on what happens to your rental portfolio during incapacity, see Rental Properties and Incapacity in Georgia.
Georgia Medicaid Planning — What Retiring Real Estate Investors Need to Know
If you or your spouse may need nursing home care in the next five years, rental property creates a specific Medicaid eligibility problem. Georgia Medicaid for nursing facility care has a $2,000 asset limit and a 60-month lookback period for transfers. Income limit is $2,982 per month.
Rental property is a countable asset for Medicaid purposes unless it qualifies as an income-producing asset exempt under Georgia Medicaid rules. The rules on exempt income-producing property are specific and fact-dependent — a single rental property producing net income may qualify for exemption; a portfolio of five properties almost certainly does not qualify entirely.
Transfers of property to avoid Medicaid eligibility are subject to the 60-month lookback. A transfer of rental property to your children within 60 months of a Medicaid application produces a penalty period — a period during which Medicaid will not pay for nursing facility care. The penalty period is calculated by dividing the value of the transferred assets by Georgia’s average monthly private-pay nursing home cost.
Medicaid planning for real estate investors is complex and requires coordination between your estate plan and a Medicaid attorney. The estate plan you need for probate avoidance and the plan you need for Medicaid eligibility are not the same document. A revocable trust does not help with Medicaid — assets in a revocable trust are still countable. An irrevocable Medicaid asset protection trust (MAPT) works differently and must be funded more than 60 months before a Medicaid application to be effective.
The QPRT Misconception — It Does Not Apply to Rental Property
Retiring investors sometimes ask about Qualified Personal Residence Trusts (QPRTs) — an irrevocable trust that removes a residence from your taxable estate while letting you live in it for a term of years. QPRTs are a legitimate estate planning tool.
QPRTs apply only to personal residences — not to rental property. A QPRT cannot hold a rental property. If a planner or attorney suggests a QPRT for your rental portfolio, that is a red flag. The correct tools for rental property at the estate tax level are valuation discounts via LLC structures, or simply holding until death for the step-up in basis.
The Georgia TOD Deed — What It Does and Does Not Do at Retirement Age
Georgia enacted the Transfer-on-Death deed on July 1, 2024 under O.C.G.A. § 44-17-1 et seq. A TOD deed allows you to name beneficiaries on a deed who inherit the property at death without probate.
For a retiring investor, the TOD deed has three critical limitations. First, the beneficiary must file an affidavit with the county recorder within 9 months of your death, or the property reverts to your probate estate. Second, the TOD deed does not address incapacity — if you become incapacitated, the deed does nothing; a trust is still required. Third, a TOD deed on property held inside an LLC is meaningless — the deed transfers the real property, not the LLC membership interest. If your property is already in an LLC, the TOD deed cannot reach it.
A revocable trust addresses all three limitations. See Problems With a Beneficiary Deed for Georgia Rental Properties for a full comparison.
What Your Estate Plan Needs to Cover Before You Retire
1
Run the sell-vs-hold tax calculation on every property
Work with a CPA to calculate the step-up in basis benefit on each property versus the immediate tax cost of selling. In most cases, properties with large built-in gains should be held. Properties with modest gains or negative cash flow may be worth selling before retirement.
2
Fund your revocable trust before you retire
A signed trust document does nothing until the properties are transferred into it. Funding the trust means recording a new deed in each county that transfers each property — or the LLC that holds it — to the trust. This step is required before the trust provides any protection. Most people sign a trust and skip this step. The properties then go through probate anyway.
3
Name a successor trustee who can manage a working portfolio
If you have five or more properties, your successor trustee needs experience managing real estate or the explicit authority to hire a property management company and pay those fees from the trust. Your trust document should specify expenditure limits, hold-sell decision authority, and whether unanimous beneficiary consent is required to sell.
4
Address Medicaid planning separately if there is a long-term care risk
A revocable trust does not help with Medicaid eligibility. If you or your spouse has a significant long-term care risk, consult with a Medicaid planning attorney at least 5 years before you expect to need care. A Medicaid asset protection trust must be established and funded more than 60 months before a Medicaid application to be effective.
5
Update your LLC operating agreements
Every LLC operating agreement should name your trust as the member, include a succession clause that prevents automatic dissolution at your death under O.C.G.A. § 14-11-601, and give the successor trustee management authority — not just income rights. An operating agreement that gives only income rights requires court intervention to get management control when you die.
For the complete guide to how Georgia landlords should hold rental property, see The Best Way to Hold Rental Properties in Georgia for Estate Planning.
