When a Rental House Became a Long-Term Plan

Residential

Nov 4

Written by Atrium

News is cool, but what can we learn from history?
2 min read

In 1967, T.J. Starker and his family made a deal with Crown Zellerbach, a large timber company. They handed over their Oregon timberland. They didn’t want cash in return. They wanted land, and the company had up to five years to deliver it.

The IRS saw it differently. In its view, giving up one property and getting the other had to happen at the same time. Anything else was a sale, and a sale meant a tax bill.

The family went to court. In 1979, the Ninth Circuit Court of Appeals sided with them. The court ruled that timing alone couldn’t disqualify a legitimate exchange. That decision is why a rental owner today can sell one property and buy the next one months later without paying capital gains tax in between.

You probably know it as a 1031 exchange. Most people who use one have never heard the Starker name. That’s how it goes with a lot of good things. Someone else fought for them a long time ago.

An idea older than the court case

The basic idea goes back much further. Congress added like-kind exchanges to the Revenue Act of 1921, as part of a tax-cut package that followed World War I. The logic was simple. If you put all the money from a sale into a replacement property, you haven’t really cashed out. There’s no money in hand to pay the tax with.

One popular account says the rule started as a way for farmers to swap land. That story is hard to pin down, so treat it as lore.

After Starker, Congress put a clock on it. The Deficit Reduction Act of 1984 set a 45-day deadline to identify a replacement property and a 180-day window to close on it. Those deadlines still apply today.

The year rentals stopped being a paper game

Then came 1986. Before that year, investors could write off a building over about 19 years, and many bought property mostly for the tax losses. The Tax Reform Act of 1986 stretched depreciation on residential rentals to 27.5 years and limited how rental losses could offset other income.

Buying for tax shelter faded. What was left was the slower, steadier case for owning a rental: rent that comes in every month and a property that can gain value over decades. Exchanges became more popular too, because they were one of the few big benefits still standing.

In 2017, the Tax Cuts and Jobs Act limited 1031 exchanges to real property. Equipment and vehicles no longer qualify. Real estate still does.

Who owns the houses now

Headlines tend to focus on Wall Street buyers. The numbers are quieter. A Chandan Economics analysis of Census Bureau data found that individual investors own 59.6% of one-unit rental properties in the U.S. The Federal Reserve Bank of St. Louis reported in October 2025 that small, mom-and-pop investors account for most of the recent growth in single-family rentals.

So the typical rental owner isn’t a fund. It’s a person with one house, or maybe five, building something they hope will last.

What this means for single-family rental owners

The rules reward patience. The big tax benefits tied to rental ownership are built around long holding periods.
Plan the sale before you list. Exchange deadlines are strict, so bring in your tax advisor early.
Decide what the house is for. It might be income now, growth later, or something to pass down. Each answer leads to different choices about upkeep, rent, and when to sell.
You’re in good company. Individuals own most of the country’s single-family rentals.

If you own a rental in Central Florida and you’re thinking past next year, we’d be glad to talk it through. Start with a free rental analysis.

Atrium Management Company provides property management, commercial brokerage, and real estate development services. Learn more here.