Any time that you sell property, whether it was property held for personal use or as an investment, you are going to be liable for capital gains tax on the sale. The only way at all to defer the tax is by participating in a 1031 Exchange. This will not actually relieve you of paying the taxes at some point in time, but it will defer them.
A 1031 Exchange is when you use the proceeds from the sale of one investment property to purchase another investment property. So if you sell the property for $55,000 and then reinvest that $55,000 in to another investment property, you would defer any tax which was due until such time as the second property was sold.
Other than participating in a 1031 Exchange, there are no other options for not paying the capital gains tax on the sale. If you sell the property for $55,000 and have a basis of $20,000, you would have a long term capital gain of $35,000. This would be subject to 15% federal tax and mN state tax of approximately 7%. So your total federal and state tax on this gain would be approximately $7,700.
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