If your client is a "calendar year" taxpayer; then they are responsible for reporting both income and deductions in the year that each was incurred. Only if the client is selling the property on an installment sale, and carrying the "note" as "seller financing" for a period longer than a year can they exclude or not claim the sale of the income producing property in the year of the sale. Deferring the capital gain on the sale of an income producing property is only possible if your client is holding a note or mortgage on the sold property and filing Form 6252 Installment Sale Income on the return in the year of sale and beyond. Did your client actually "close" on the property sale before the end of calendar year and receive the proceeds of the sale? The IRS position is income is recognized when the taxpayer has "constructive" use of the income, not necessarily when it was paid, I.E. placed into Escrow, Ect.