Conquer the Commercial Real Estate Sector with the Government’s Help

It takes a savvy investor to realize the value of taking on the government as a partner when playing the commercial real estate sector. Yes, you read that right. Through the 1031 tax-deferred exchange, you can bring on the government as a silent partner in your venture.

Through the section 1031 provision of the Tax code, the government is open to injecting cash into your investment projects. Well, the taxman won’t cut you a check but will forgo taking his cut when the taxes are due. You get to keep 100 percent of sales proceeds, including the capital gains, when you sell a commercial property.

What’s the catch?
Surprisingly, the IRS won’t have you jumping through impossible hoops to qualify for a tax deferment. See, the government realizes that a growing population translates to an increased demand for housing, commercial spaces, and retail spaces. The demand far outstrips the government’s ability to meet this need.

Section 1031 was crafted to help investors in the commercial real estate sector increase the supply. In essence, the taxman only requires that you invest 100 percent of the sales proceeds back into the commercial real estate sector. By deferring capital gains tax, you will have a bigger purse going after the next purchase.

That said, you only have six months to conclude the entire property exchange. The program is referred to as an exchange because you simply swap one commercial property for another. Since the value of the replacement property can be up to twice the value of your current holding, a property exchange is a chance to trade up.

How is the process beneficial?


The most glaring advantage is that you get to trade up, get a more valuable property, probably with a higher rental income. But that’s not all. You can switch between the various categories of commercial real estate. For instance, you can dispose of a block of apartments and replace it with an office block.

Switching categories let you chase after the most profitable sector or escape one that on the decline to ensure a steady rental income. You can also use a property swap to escape terrible real estate markets. As long as you adhere to the section 1031 guidelines, you can buy commercial property anywhere in the country.

The property swap process also allows you to diversify your investment portfolio. For instance, you can spread your holdings to include a duplex, an apartment block, an office building, a small warehouse, and an agricultural farm. As long as you follow the property value guidelines, you can replace one property with a series of commercial properties.

The federal government is rooting for your success when investing in commercial real estate property. Through section 1031 of the tax code, the government lets you defer paying capital gains tax after selling commercial property. Taking part in a property exchange not only increases your buying power but also enables you to chase after the most lucrative opportunities in the commercial real estate sector.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.