An investment property, unlike a personal residence, doesn't allow for a $250,000 exemption of gains from taxation (which is, for married couples filing jointly on the sale of a personal residence, a $500,000 exemption). One way or other, you will have to pay the piper, though there are ways of minimizing and spreading the taxes over a series of years.

Trouble is, far too many clients call at the last minute, saying a sales contract has been signed on their investment property, and what can they do to avoid the tax bite? By then, sadly, there is little they can do. Given more time to put a favorable transaction together, there would be two strategies to consider.

First, you can engineer an exchange in which you end up with a rental property or properties that better fit your financial future. Indeed, you can exchange into a property that, after renting it out for a few years, you decide to move into and use as your retirement home.

Second, you can arrange an installment sale, carrying much or all of the financing and spreading the tax liability over the future years so that it doesn't swamp your next tax return.

One important point: It is always best to sit down with your tax advisor and real estate professional to map out your strategy for every investment property long before selling it−−even before buying it in the first place. So call Beth at 425-450-5208 and visit her website at www.bethbillington.com.

Beth Billington is a Realtor® with Coldwell Banker Bain in Bellevue, WA.