Investing in Florida commercial real estate is already a strategic way to diversify your portfolio, but there are even more ways to make future investments work in your favor. One is to use a Section 1031 exchange when buying and selling commercial properties.
Who Qualifies for a 1031 Exchange?
Investors in Florida can take advantage of tax benefits and portfolio diversification by leveraging a 1031 exchange. Per the IRS, individuals, S-corporations, C-corporations, trusts, LLCs and other groups may request a 1031 exchange.
Also known as a like-kind exchange, this type of transaction enables commercial real estate investors to sell one type of property for another similar property that will be used for the same purpose. In doing so, you can defer your capital gains tax payment and allow your investment to grow tax-deferred until you decide to eventually sell your property for cash many years down the road. There is no limit to the number of 1031 exchanges an investor can do.
What Type of Properties Qualify for a 1031 Exchange?
The properties involved in the exchange must be of “like kind,” but this term is often broadly interpreted. Examples of commercial properties include:
- Office or industrial properties
- Retail centers
- Multifamily housing
- Hotels and resorts
- Mixed-use properties, etc.
To qualify for a like-kind exchange, the property to be acquired must be identified within 45 days of the sale of the previously relinquished property, and the entire exchange must be completed within 180 days of the original sale.
Although a 1031 exchange can be a valuable tool for commercial real estate investors seeking to defer capital gains taxes and optimize their investment portfolio, it requires careful planning and close collaboration with professionals well-versed in tax law and real estate transactions.
If you have plans to sell and reinvest in South Florida, get in touch with our team at the Law Offices of Alex D. Sirulnik, P.A. We partner closely with intermediaries to assist in the successful transaction of your properties.