If you have a commercial property you wish to get rid of but you have concerns about the tax consequences, you may be able to minimize your liability through a 1031 tax-deferred exchange.
This type of transaction allows you to trade property with another owner and skip the huge tax payment. Kiplinger notes a 1031 tax-deferred exchange can be a solution if you have someone with which to partner and you both own similarly valued properties.
A 1031 tax-deferred exchange is trading properties with another person that are similar. You will have to trade commercial properties. You cannot trade residential for commercial or otherwise. This option is ideal if you have a property you want to sell but you are also in the market to buy a new one.
The properties you trade need to be similar in value because any difference in value is taxable. Ideally, you can do an even trade, so neither of you has tax liability. However, keeping the values close will minimize how much pay and enable you to use this tool. If you also exchange cash to cover part of the value, that cash is taxable. So, keep the properties as similar as possible.
You also must do this trade within 45 days and close within 180 days.
Using the 1031 tax-deferred exchange may be a benefit if you are already in a situation to buy a property similar to the one you already own. Otherwise, the hoops you must jump through may not pay off, and the tax savings may not be worth it.