Selling commercial real estate can be a rewarding financial move, but it also comes with important tax considerations that every property owner should understand. If you’re in Florida and considering a sale, knowing how commercial property capital gains tax in Florida works can help you make smarter financial decisions and avoid costly surprises.
Whether you’re an investor looking to cash out, a business owner ready to relocate, or someone restructuring their portfolio, this guide will break down the essentials you need to know.
What Are Capital Gains Taxes?
When you sell a commercial property for more than you originally paid for it (plus improvements and expenses), the profit you make is considered a capital gain. The IRS taxes these gains differently depending on how long you’ve owned the property:
- Short-term capital gains: Profits on properties held for less than one year. Taxed at your ordinary income tax rate.
- Long-term capital gains: Profits on properties held longer than one year. Generally taxed at 0%, 15%, or 20%, depending on your income bracket.
In Florida, the good news is that the state does not have its own income tax, meaning you only owe federal capital gains taxes.
👉 Learn more about how capital gains are calculated on the IRS website.
How Capital Gains Tax Applies to Commercial Property
Commercial properties often appreciate significantly over time, making the tax implications more substantial than with smaller assets. The commercial property capital gains tax in Florida depends on several factors:
Sales price minus expenses: Commissions, closing costs, and legal fees reduce your taxable profit.
Your purchase price (basis): What you paid for the property originally.
Improvements made: Renovations, expansions, or upgrades can increase your basis, reducing taxable gains.
Depreciation recapture: If you’ve been claiming depreciation deductions on the property, the IRS requires you to “recapture” those deductions at a 25% tax rate when you sell.
Example: Selling a Florida Commercial Property
Let’s say you purchased a warehouse in Pensacola for $500,000 ten years ago. Over time, you spent $100,000 on improvements and claimed $150,000 in depreciation. You sell it today for $1,000,000.
- Purchase price (basis): $500,000
- Improvements: +$100,000 → Adjusted basis = $600,000
- Depreciation claimed: -$150,000 → New adjusted basis = $450,000
- Sales price: $1,000,000
- Capital gain = $1,000,000 – $450,000 = $550,000
You’d owe long-term capital gains tax on the $550,000, plus depreciation recapture at 25% on the $150,000.
Strategies to Reduce Capital Gains Tax
The good news is, there are legal ways to minimize the tax burden when selling a commercial property. Here are some popular strategies:
1. 1031 Exchange
A 1031 exchange allows you to defer paying capital gains taxes if you reinvest the proceeds into another like-kind property. This is a powerful tool for real estate investors looking to grow their portfolio without losing profit to taxes.
👉 You can read more from the Florida Realtors Association on 1031 exchanges.
2. Opportunity Zones
Investing your gains into qualified Opportunity Zones can defer and potentially reduce capital gains taxes while supporting community development.
3. Installment Sale
Instead of taking the full payment upfront, you can structure the sale as an installment plan, spreading out income and possibly lowering your overall tax rate.
4. Step-Up in Basis (Estate Planning)
If you pass down your commercial property to heirs, they’ll receive a “step-up in basis” to the property’s current market value, which can eliminate years of capital gains tax liability.
Other Tax Considerations When Selling Commercial Property
Beyond capital gains tax, sellers should also factor in:
- Depreciation recapture – As mentioned, this can be a big part of your tax bill.
- State transfer taxes – While Florida doesn’t tax capital gains, it does impose a documentary stamp tax on real estate transfers.
- Business entity taxes – If you own the property through an LLC, partnership, or corporation, tax implications may vary.
When to Sell a Commercial Property in Florida
Timing your sale can make a major difference in your bottom line. Consider selling when:
- Your property has appreciated significantly.
- Rental income is declining due to market shifts.
- You’re nearing retirement and want to cash out.
- You want to exchange into another investment using a 1031 exchange.
At The Gulf Coast Property Group, we help owners understand their options when deciding whether to sell or lease commercial property and what exit strategy makes the most financial sense.
📞 Call us today at (850) 203-5788
💻 Or request your no-obligation cash offer here.