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Can I Do a 1031 Exchange With Various Types of Commercial Properties?

business use property 1031 exchange

Yes! As long as the property you sell and buy are for investment or business use, a 1031 exchange offers tax deferral. 1031 exchanges could defer and possibly eliminate federal, state, and capital gains taxes.

What Types of Commercial Properties Are Eligible for a 1031 Exchange?

Some eligible 1031 exchange commercial properties 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?

Yes, you may use the property you buy in an exchange for your business. For example, you may exchange a retail strip center for an office building. In this case, you may use the office building for your business. 1031 exchanges can offer an expansion of company headquarters or warehouse space needed to run a business.

How do I know if it would be beneficial for 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
  • Higher-income potential – 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 (for example)
  • Relocate – exchange commercial property in New York for investment property in Florida
  • Acquire a less management intensive property – exchange a rental home for raw land
  • Expand a business into a larger space – exchange a single-story office property into a multi-floor office building

Does the New Tax Law Allow Me to Still Do a 1031 Exchange With My Commercial Properties?

Yes. The Tax Cut and Jobs Act was signed into law on December 22, 2017, and took effect on January 1, 2018. It still allows the exchange of real estate assets and is now called the “Exchange of real property held for productive use or investment.”

Are There Different Types of 1031 Exchanges?

There are a few different types of 1031 exchanges. Any of the available exchange types are available for commercial property. Midland is able to accommodate all types of exchanges.

Conclusion

There are many advantages to 1031 exchanges for commercial properties. These advantages range from deferring capital gains taxes to expanding your business. All types of commercial property are eligible for a 1031 exchange.

We ask that you check with your tax advisor or CPA to calculate your potential capital gains taxes.