1031 Exchange | Florida
Defer Taxes on the Sale of Your Commercial Real Estate
How Can I Use a 1031 Exchange to Avoid Taxes on My Property Sale?
Technically, you are not avoiding taxes, but deferring them. The 1031 exchange process allows you take the proceeds from the sale of your property and roll it over into one or more other properties of a similar type (i.e. commercial property to commercial property). If you did not do a 1031 exchange, you may be subject to capital gains tax on your property. With the 1031 exchange process, capital gains are only due when the property is sold and cash is taken out. Multiple, sequential 1031 exchanges can be done to defer capital gains taxes indefinitely.
When Should I Consider a 1031 Exchange?
1031 exchanges are particularly useful for investors who:
- Have commercial real estate that has significantly increased in value
- Would like to transition from a management-intensive property to a low-maintenance property
- Have significant equity in their property and would like to leverage it to increase their net worth
If I Do a 1031 Exchange, Does that Mean that I Don’t Get Any Cash from My Sale?
You are able to take some of the money in cash, however this portion will be subject to capital gains tax. For example, you purchased a commercial property in Central Florida in 1990 for $200,000 and today it is worth significantly more. You want to sell your property to cash in on the current high market prices and learn that you can net $1,000,000 from the sale. You would like to take $100,000 in cash to pay for your daughter’s college education, but want to avoid a large tax liability. You like the income that you receive from your property, but would like a new property in Orlando that is less management intensive. You decide to keep $100,000 in cash and invest the other $900,000 in a new commercial property that requires virtually no maintenance. In this scenario, you would only have to pay taxes on the $100,000 you took out in cash.
How Can You Help Me with a 1031 Exchange?
Marcus & Millichap is an industry leader in 1031 exchanges and has the nation’s largest inventory of 1031 exchange properties, including high cap rate properties, in the retail single-tenant, retail multi-tenant, apartment, office, industrial, hotel, senior housing, manufactured housing, and self-storage sectors. Our long-term relationships with owners and investors of every major property type in markets nationwide allow us to match properties and exchange buyers with speed and efficiency.
If you decide to do an exchange, you have a limited time from the close of the sale of the original (relinquished/ downleg) property to identify and purchase the new (replacement/ upleg) property. Consequently, it is important to work with a broker who has a large inventory of exclusively listed properties (exclusively listed properties are much more likely to close than open listings) with experience in doing 1031 exchanges.
A large percentage of the properties that we sell are involved in 1031 exchanges. We have many properties in the Orlando MSA/ Florida that can be acquired as 1031 exchange replacement properties.
Note: The above is intended only to give you a brief overview of how the 1031 process works so that you can determine if it would be advantageous for you if you decide to sell your property. You should always consult both an attorney and a 1031 intermediary before deciding to go forward with a 1031 exchange.