Commercial real estate investors who are ready to sell oftentimes don’t know what to do next. The dreaded 5-letter T word (taxes) always seems to come to mind when selling commercial real estate. How will you handle the funds after the sale closes? How do I turn those funds into something that will benefit me and my family? Luckily there is a solution for all these problems and we will go into detail on how to optimally navigate your experience.
Taxes and Commercial Real Estate
Selling commercial real estate holdings feels stressful because of the unknown, like how to handle taxes post-sale. Will your small-town tax accountant you’ve worked with for 30 years be able to handle the specific tax code? What other complications can the sale cause?
Ann Royal Advisors have navigated it all when it comes to selling your commercial real estate. The benefit of working with us is that you get more than just a stack of cash and a tax bill. You get guidance on how to successfully navigate the ins and outs of selling your property. Ann Royal Advisors provides resources and consulting for commercial real estate owners looking to transition out of their current property. Which allows you to be positioned to create long-lasting wealth post-sale.
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What Taxes are Due Selling Commercial Real Estate
When selling commercial real estate, the taxes owed will be determined by the specific circumstances of the sale as well as the laws of the jurisdiction in which the property is located. Typically, the seller will owe capital gains tax on the sale profit, as well as any state and local taxes that may apply.
In some cases, the seller may also be responsible for paying transfer taxes or other fees associated with the sale of the property. It is critical to consult with one of our professionals or a real estate attorney to determine the specific taxes that will be due in a given situation.
6 Ways to Save on Commercial Real Estate Taxes
There are a number of strategies that can be used to save on commercial real estate income taxes. The main ways to save are the following:
- Depreciation: Commercial real estate can be depreciated over a number of years, which can reduce the amount of taxable income in the short-term.
- Cost segregation: By breaking down the different components of a commercial property, such as the land and the building, it may be possible to accelerate depreciation and reduce taxable income.
- 1031 exchange: Instead of selling a property and paying taxes on the capital gains, an investor can use a 1031 exchange to defer taxes by using the proceeds to purchase a new property.
- Passive loss rules: If the property is held in a partnership or an LLC, it may be possible to offset the income generated by the property with losses from other passive investments.
- Location: The tax laws in different states and municipalities can vary, so it may be beneficial to invest in properties located in areas with lower taxes.
- Tax deductions: You can also claim deductions for various expenses related to the property such as property management, maintenance, repairs, insurance, etc.
The biggest benefit of working with us is that we humanize all these terms and walk you through the process of selling your commercial real estate. We look into each of these ways to mitigate your tax liability and advise you on how to optimally move forward with the proceeds.
As an owner of a storage unit facility, you may be considering selling your business. However, you may be hesitant due to concerns about taxes. You are not alone – many storage unit facility owners feel apprehensive about the tax implications of selling their business.
Thankfully, there are solutions available to help mitigate the impact of taxes on the sale of your storage unit facility.
How to Handle Taxes
- 1031 Exchange: Also known as a “like-kind exchange,” a 1031 exchange allows you to defer paying taxes on the sale of your storage unit facility by investing the proceeds from the sale into another investment property. This can help you avoid paying taxes on the sale of your business, at least for the time being.
- Installment Sale: An installment sale allows you to receive payment for your storage unit facility over time, rather than in one lump sum. This can help you spread out the tax liability from the sale over several years.
- Retirement Planning: Some retirement accounts, such as a Self-Directed IRA or Solo 401(k), allow you to invest in real estate and other alternative assets. By using these types of accounts, you can potentially avoid paying taxes on the sale of your storage unit facility.
The best solution for you will depend on your specific situation and goals. We have developed plans for storage facility owners to help them exit and develop an A-Z plan. With the right strategy in place, you can feel confident in your decision to sell your storage unit facility, knowing that you have taken steps to mitigate the impact of taxes on your sale.
