Commercial Property Requires 1031 Consideration

Tweet

 

Whenever selling commercial property, a 1031 exchange must be evaluated to determine whether it makes sense.  Clearly there are reasons not to exchange including:

• Restrictions on the use of equity;
• Higher transactional cost;
• Lower basis in replacement property;
• Tired of being a landlord;
• Want to cash out.

But for the most part, if the intent is to replace with real property of equal or greater value, a 1031 exchange should be reviewed with your financial advisor far in advance of the closing.

The primary reason for a 1031 exchange is the US Government provides an interest free loan for the value of the tax as long as equal or greater property is purchased. Those tax dollars may represent needlessly expended dollars that will be paid in the future, but can be used towards purchasing the replacement property. The savings is the cost to borrow.

A partial list of commercial property eligible for 1031 consideration is:

• Apartments;
• Convenience stores and gas stations;
• Golf courses and driving ranges;
• Hotels and motels;
• Marinas;
• Nursing homes;
• Office buildings;
• Parking garages and lots;
• Self storage units;
• Shopping centers and strip malls;
• Warehouses.

There are many types of exchanges including:

• Forward;
• Reverse;
• Improvement;
• Build to suit;
• Build on land already owned.

Each exchange must follow the same set of 1031 exchange rules such as completing the exchange within 180 calendar days.  Multiple properties can be sold to purchase one or many.  Commercial property exchanges can include personal and real property.

Call us when you are in the planning stages to learn more options.  Always seek the counsel of your financial advisor.