Sure. It happens every day. Just because you do not have a mortgage, it does not mean your cost basis is zero. So your cost basis is what you paid for it in addition to what you put into it. The profit for tax purposes would be the sales prices minus your closing costs minus your cost basis. Further, if you put your property on the market now, chances are it will not settle into 2009 (if you get a fast deal, postpone settlement till next year), then your tax consequence can be deferred until you do your taxes in 2010.
Buying other rental properties will not have any immediate tax impact with the IRS.
Your other option would be to do a 1031 exchange would which be a good option if you have a large gain on the subject propertty. You would then need to roll that up into another larger property.
I would sugest to consult your CPA or a real estate attorney as well for specifics and clarification, especially regarding the 1031 Exchange as that is more complex.
When you are ready to purchase other investment properties, check out a great investor site -
Good luck !