Commercial Real Estate Exchanges
Section 1031 exchanges are useful commercial property tax deferral tools for commercial real estate property owners. Investors or owners can diversify their holdings or make changes to their investment portfolios without incurring immediate tax liability.
Plaza Commercial Real Estate agents are trained in the transaction and property requirements necessary to qualify for a 1031 exchange in Wichita, Kansas. Your agent is available to facilitate the transaction, which may include the purchase and/or the sale of one or both of the properties being exchanged. Services often include performing an investment analysis to ensure the exchange makes sense for you and structuring the deal so it’s compliant with IRS requirements.
What is a 1031 Exchange?
A 1031 exchange is named for Internal Revenue Code Section 1031. Typically, when a commercial real estate property owner sells business or investment property, he or she is required to pay tax on the amount of profit, or gain, at the time of sale.
However, the Internal Revenue Service offers an exception that allows you to perform an exchange and reinvest the proceeds of the sale into similar property. This could include like-kind property or a combination of property and cash and/or liabilities.
While not tax-free, a Section 1031 exchange is tax-deferred, because it allows a commercial real estate property owner to defer paying federal and state taxes on capital gains and recaptured depreciation from the sale of a property.
1031 Exchange Structure Types
To qualify for tax deferral under Section 1031, one property has to be exchanged for another. These transactions are often complex, so investors or businesses typically use an exchange facilitator, such as a Plaza Commercial Real Estate agent, to ensure proper structure and terms. The IRS allows for several 1031 exchange types, each with specific qualifications:
- Simultaneous Exchange
- Delayed Exchange
- Reverse Exchange
- Construction or Improvement Exchange
Who Qualifies for Section 1031 Exchanges?
The IRS states that investment or business property owners may qualify for a 1031 exchange, including:
- C Corporations
- S Corporations
- Individuals
- Partnerships
- LLCs
- Trusts
- Other taxpaying entities
What Types of Property Qualify for Like-Kind Exchanges?
Many commercial property types can be eligible for a 1031 exchange, such as office buildings, warehouses, apartment buildings, hotels, shopping centers and more. Regardless of the type, there are qualification requirements for both the property being sold and the property being acquired:
- Both properties must be used for investment, business or in a trade
- Both properties must be “like-kind”, which means the same class or nature
- The property being purchased must be of greater or equal value than the property being sold
Some property types are excluded from Section 1031 exemptions:
- Stocks and bonds
- Partnership interests
- Securities
- Debt
- Certificates of trust
- Business inventory
How a Plaza Commercial Real Estate Agent Can Help You
The IRS has placed a number of rules and qualifications around Section 1031 exemptions. A Plaza Commercial Real Estate agent is a trained professional who is well-versed in these requirements and the documentation required for a 1031 exchange transaction. Your agent will be a valued resource and consultant who can guide you throughout the process and help you maximize your benefits to meet your real estate investment goals.
Contact Us Today
Contact Plaza Commercial Real Estate for expert guidance on your next Section 1031 Exchange.