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One more possibility to ponder.

Since the property is a rental, it could be exchanged for another piece of real estate in a 1031 exchange.

If I remember the ordering of things, they could use the $250k/$500k exclusion first, then defer the taxation of any remaining gain. Providing the sale portion of the exchange happened within the 3 year window, they'd get the benefit of the tax break. Plus, if they purchased another property in the same general market, they could maintain their real estate investment and should get appreciation (or depreciation) that would be similar to the property they gave up in the exchange.

And now for the fun kicker.

IF they picked a replacement property that they might enjoy living in for retirement, they could convert the exchange up-leg (the replacement property) from a rental back to personal use after a number of years using it as a rental. And if they lived there for at least two years after that, they'd get some more tax free gains.

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