When should I sell a Colorado Springs rental property, and what are my options if I'm done being a landlord?

It's worth considering a sale when the rental no longer fits your life goals or the numbers: a major repair is coming, your equity could work harder somewhere else, or you're simply done being a landlord. Your main options are to sell and pay the taxes, sell and use a 1031 exchange to defer them into another investment property, or keep the home and hire a property manager. Whichever you choose, plan the timing carefully, because the tenant's move-out, the repairs, and the listing date all have to line up.

Start with your goals, not the property

Before talking about the house, I start with the Life → Wealth → Real Estate™ process. What's your life goal now? Retiring, moving closer to family, simplifying, or putting money toward something else? Then, how do we make the most of that for your wealth? Only then do we decide the real estate strategy: sell, exchange, or keep.

The same property can be the right thing to keep for one owner and the right thing to sell for another.

Signs it may be time to sell

• A big expense is coming. A roof near the end of its life, an aging furnace, or other major systems are a natural point to decide whether to reinvest or sell.
• The numbers have changed. Rent, taxes, insurance, and repairs no longer leave the cash flow you need.
• Your equity has grown. A lot of equity sitting in one rental may do more for your goals in another property, an exchange, or somewhere else entirely.
• Being a landlord no longer fits. If calls from tenants or managing from a distance are wearing on you, that's a legitimate reason to sell.
• Your plans changed. Retirement, a move, or a change in family needs can all shift what the property is for.

Your options if you're done being a landlord

Sell and pay the taxes

This is the simplest path. You sell, pay any capital gains tax and the tax on depreciation, and keep what's left. Some owners prefer the clean break.

Sell and do a 1031 exchange

A 1031 exchange lets you sell an investment property and buy another one while deferring the capital gains tax. It defers the tax; it doesn't eliminate it. The basic parameters:

• Like-kind property. Both properties must be real estate held for investment or business use, and most U.S. real estate is like-kind to other U.S. real estate: a house for a duplex, a condo for land, or a rental here for one in another state. Property outside the United States doesn't qualify, and neither does a home you'd buy to live in right away.
• 45 days to identify. You have 45 days after you sell to identify the replacement property in writing.
• 180 days to close. You must close on the replacement within 180 days of the sale, or by your tax return's due date if that comes first.
• A qualified intermediary. The sale proceeds go to a qualified intermediary, not to you, so the exchange isn't broken by your receiving the money.
• Boot is taxable. Any cash you take out, or debt you don't replace, is called "boot," and it's taxed.

A few owners exchange into a Delaware Statutory Trust (DST), a way to own a share of a larger, professionally managed property, which can appeal to someone who wants to stay invested without being a landlord. A DST is an investment product, so review it with your CPA and a financial advisor.

You may also be able to buy a replacement property, rent it out, and move into it eventually. That's possible, but there are rules about how long it must be held as an investment first, and a home acquired through an exchange must be owned at least five years before its sale can qualify for the home-sale tax exclusion. Plan that with your CPA before you buy.

Knowing these deadlines up front shapes the whole strategy. If you plan to exchange, I recommend lining up the replacement search before your sale closes, so the 45-day clock doesn't catch you unprepared. How a 1031 exchange works when you sell a Colorado Springs rental goes deeper.

Keep it, but hire a property manager

If the property still makes sense as an investment and it's the day-to-day work you're tired of, a property manager can take that on. Build the management fee into the numbers to make sure it still works.

If this used to be your home: the two-out-of-five-year window

If you lived in the home before renting it, the timing of your sale matters. The IRS generally lets you exclude gain on a home you owned and lived in for at least 2 of the 5 years before the sale. Once you've been out of the home long enough that you no longer meet that test, the exclusion is generally gone, and the property is taxed like any investment property. That's often when owners consider a 1031 exchange, as long as the home has been held as a rental. Depreciation is taxed when you sell either way.

Ask your CPA where you stand before you set a sale date. How capital gains work when you sell a Colorado Springs home explains the exclusion.

Timing the tenant's move-out with getting the home ready

Selling a rental is a process, and the hardest part is often syncing three dates: when your tenants leave, when the home is ready to show, and when it goes on the market.

• Know your lease and the notice rules. Colorado's 2024 for-cause eviction law allows a landlord to end a tenancy to sell the home, but it requires advance written notice, generally 90 days, along with other conditions. Check with a landlord-tenant attorney or your property manager before you give notice, and before you sign or renew a lease if you're thinking of selling.
• Decide: tenant-occupied or vacant. Some rentals sell to investors with the tenant in place. Most homes show and sell better vacant and prepared, but that usually means a period with no rent.
• Plan the turnover work. Once the tenant leaves, there's typically cleaning, paint, repairs, and sometimes bigger items to handle before photos. Book those professionals ahead of the move-out date so the home doesn't sit empty longer than it has to.
• Line up an exchange early. If you're doing a 1031 exchange, start looking for the replacement before you list, so your sale and purchase timelines fit together.

Understanding your timelines as the seller is what lets us set the right real estate strategy.

What's specific to selling a Colorado Springs rental

• Owners who live outside Colorado. If you aren't a Colorado resident, the title company generally withholds the lesser of 2% of the sale price or your net proceeds at closing for sales over $100,000, and sends it to the Colorado Department of Revenue. It's credited toward your Colorado income tax, and you claim it on a Colorado return, so plan your cash at closing with that in mind.
• Roofs and hail. In Colorado Springs, a roof's age and hail history affect buyers, insurance, and inspections. Knowing the roof's condition early helps you decide what to fix and what to price in. Whether to sell as-is or make repairs walks through that decision.
• Permits on past work. Repairs or upgrades done during the rental years may have needed a permit from the Pikes Peak Regional Building Department. Gather those records, because buyers and their inspectors may ask.

How I help owners who are done being landlords

How to decide

• If a major repair is coming and you don't want to reinvest, it may be the right time to sell.
• If you want to stay invested but are done being a landlord, compare a 1031 exchange, including a DST, with hiring a property manager.
• If you want a clean break and simplicity, selling and paying the taxes is a reasonable choice. Ask your CPA what you'd owe.
• If the home used to be your residence, check the two-out-of-five-year window before you set a date.
• If you have a tenant in place, plan the notice period and turnover work before you choose a listing date.

What could change the answer

• Whether you still meet the 2-of-5-year test for the home-sale exclusion.
• The condition of the roof and major systems, and what buyers will expect.
• The lease terms and Colorado's notice rules for ending a tenancy to sell.
• Whether you want to stay invested in real estate, and in what form.
• Your tax situation, including depreciation and whether you live outside Colorado.

When to talk with a professional

Talk with a CPA before you list, about capital gains, depreciation, and whether a 1031 exchange fits. If you plan to exchange, choose a qualified intermediary before your sale closes. Talk with a financial advisor if you're considering a DST. Ask a landlord-tenant attorney or your property manager about the notice required to end the lease. And talk with a local real estate professional about the home's condition, what to fix, and the timeline from move-out to listing.

Sources

• IRS, Like-Kind Exchanges: Real Estate Tax Tips: https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips
• IRS, Instructions for Form 8824 (45-day and 180-day deadlines): https://www.irs.gov/instructions/i8824
• IRS Publication 523, Selling Your Home: https://www.irs.gov/publications/p523
• 26 U.S.C. § 121(d)(10), property acquired in a like-kind exchange: https://www.law.cornell.edu/uscode/text/26/121
• IRS Revenue Ruling 2004-86 (Delaware statutory trusts): https://www.irs.gov/pub/irs-drop/rr-04-86.pdf
• Colorado General Assembly, HB24-1098, Cause Required for Eviction of Residential Tenant: https://leg.colorado.gov/bills/hb24-1098
• Colorado Department of Revenue, Form DR 1083 (Information with Respect to a Conveyance of a Colorado Real Property Interest): https://tax.colorado.gov/DR1083
• Colorado Revised Statutes § 39-22-604.5 (withholding on nonresident real property sales): https://colorado.public.law/statutes/crs_39-22-604.5
• Pikes Peak Regional Building Department: https://www.pprbd.org