Question: I have a house that I have owned for 24 years. It's rented out for $450 per month, but I can't keep up with the work involved and want to sell the house. I paid $38,000 and want to sell it for $142,000. Is there a way to reduce the capital-gains tax?

-- Sherry, location not provided

If you have made capital improvements to the home, you can reduce the amount of the capital gain by subtracting the cost of those improvements. You'll need to have records proving that you made those improvements. Note to all rental-property owners: Keep careful records on any major improvements you make.

If you want to avoid capital-gains taxes, you could keep the property and, if needed, extract cash by taking out a mortgage. Your heirs would then pay capital-gains taxes on the house only to the extent that it appreciates from its value at the time of your death.

Or, Mr. Nissenbaum says, you could consider entering into a Section 1031 transaction, which involves swapping one property for another on a tax-free basis. You might consider swapping this home for a condominium that requires no maintenance work on your part, for example.

-- Mr. Hagerty is a staff reporter for The Wall Street Journal. His "House Talk" column appears most Fridays on RealEstateJournal.com. E-mail him your questions about the residential real-estate market. Please include your first name and city and state. If your question is answered and posted, we will show your first name and city. Due to volume of mail received, we regret that we cannot answer every question.

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