1031 Exchanging Commercial Property

1031 exchanging commercial property

1031 Exchanges, also commonly called like-kind exchanges, allow investment or business-use property owners to defer paying potentially significant capital gains with real estate sales. Commercial property is one type of real estate that qualifies as like-kind property. There are a few common questions that arise when looking to exchange this type of property. View our complete list of frequently asked questions regarding 1031 exchanges.

Can I do a 1031 Exchange with various types of commercial properties?

Absolutely. As long as the property(ies) you are selling and buying are considered investment or business-use property, a 1031 exchange could defer (and maybe even down the road, eliminate) federal taxes, state taxes, and capital gain taxes.

What types of commercial properties are eligible for a 1031 exchange?

Some examples of commercial properties eligible for a 1031 exchange include (but are not limited to):

  • Industrial properties
  • Warehouse properties
  • Multi-family properties, including high-rise or apartment complexes
  • NNN properties
  • Delaware Statutory Trusts (DSTs)
  • Office properties
  • Retail properties
  • Land used for speculation/Development
  • Hotels/Motels
  • Storage Facilities
  • Medical office/Retail
  • Special purpose (churches, government buildings, etc.)

May I use my commercial properties even if I do a 1031 exchange?

You may use the property you buy in a 1031 exchange for your business. For example, if you exchange a retail strip center for an office building, you may use the office property for your business. Many 1031 exchanges are used to expand company headquarters or increase the amount of warehouse space needed to run a business.

How do I know if it would benefit me to do a 1031 exchange of my commercial properties? What is in it for me?

Benefits of doing a 1031 exchange include:

  • More purchasing power – more money to invest since you are deferring the taxes
  • More selling power – no need to increase the price to sell the property to cover the taxes
  • Acquire a property that produces more income – exchange raw land for a retail center
  • Consolidate smaller properties into one larger or greater income-producing property – exchange individual office condo(s) for a high-rise multi-family property
  • Relocate investment properties closer to home – exchange commercial properties in New York for properties in Florida
  • Enables investor to acquire a less management intensive property – exchange a rental home for raw land
  • Allows the investor to expand a business into a larger space – exchange a single-story office property into a multi-floor office building

There are many advantages to completing a 1031 exchange for commercial properties ranging from deferring capital gains taxes to expanding your business. All commercial property types are eligible for a 1031 exchange as long as they are held for investment or business use.

We ask that you please check with your tax advisor or CPA to calculate your potential capital gains taxes. To start your 1031 exchange or to learn more, call us at 239-333-1031. Or, visit the Midland 1031 website.

Sam Tennant, Midland 1031 Associate

Written by Sam Tennant

Midland 1031 Associate, Midland IRA, Inc.