It's not the property that gets taxed; it's the gain in value that does. This the basis of capital gains. You can do whatever you want with the property, but if you have an increase in value on sale to someone else, then you made income, and that's what is taxable. Property has nothing to do with it aside from making you eligible to get the new income when you unload it. The losses also wipe out other capital gains too. People also forget to mention that part when complaining about capital gains taxes.