Before you sell a net-lease property, it's worth knowing what the tax bill looks like — because it's often bigger than people expect, and because there are real, legal ways to shrink or defer it.

Quick disclaimer up front: this is the plain-English version, not tax advice. Everyone's situation is different, and you should run the actual numbers with your CPA. But if you know what the pieces are, you'll ask better questions and you won't get surprised at closing.

The two taxes that bite

When you sell, two things get taxed, and people usually forget the second one:

  • Capital gains. Tax on your profit — roughly the sale price minus what you paid and put into the property (your basis). If you've owned it more than a year, it's taxed at long-term capital-gains rates, plus whatever your state takes.
  • Depreciation recapture. This is the one that surprises people. Every year you owned the building, you likely wrote off depreciation against your income — a nice deduction at the time. When you sell, the IRS "recaptures" that benefit and taxes it, often at a higher rate than the capital gain. The longer you held and depreciated, the bigger this can be.

Between the two, the hit on a property you've owned a long time can be substantial. That's the sticker shock — and the reason the next part matters.

The 1031 exchange: defer all of it

A 1031 exchange (named for the tax-code section) lets you sell one investment property and roll the proceeds into another "like-kind" one, and defer both the capital gains and the recapture. Done right, you pay nothing now and keep your full equity working in the next property.

The rules are strict, and the deadlines are the part that trips people up:

  • 45 days from your sale to formally identify the replacement property (or properties).
  • 180 days from your sale to close on it.
  • The money has to go through a qualified intermediary — you can't touch the proceeds in between, or the exchange is blown.
  • The replacement generally has to be equal or greater in value, with equal or greater debt, to defer the whole gain.

Those clocks are hard deadlines with no mercy for a near-miss, which is why a 1031 is something you plan before you sell, not after. If a 1031 is your plan, line up the intermediary and start scouting replacements early.

A few other things worth knowing

  • Stepped-up basis on inherited property. If you inherited the property, your basis likely reset to its value at the date of death — which can wipe out most of the capital gain and the recapture, and makes selling far more tax-efficient than people assume. (More: what to do with an inherited commercial property.)
  • Installment sales. Spreading the payments (and the tax) over several years is sometimes an option, though it doesn't apply to recapture and isn't right for everyone.
  • Timing. What else happened in your tax year matters. Sometimes shifting a closing by a few weeks across a year-end changes the bill.

Every one of these is a conversation for your CPA. The point here is just to know they exist so you can ask.

How the buyer affects your taxes

Your tax outcome is mostly about your own basis and holding period — but the buyer affects the parts that touch timing:

  • A 1031 is a race against the 45- and 180-day clocks. When you're on the buy side of an exchange, a seller who closes fast and on schedule is worth a lot. When you're selling to fund your own exchange, a buyer who closes on time and doesn't fall through protects your deadlines.
  • A buyer who can close on a date certain lets you plan timing — year-end, an exchange window — instead of hoping a financed deal comes together in time.

That certainty is exactly what a direct cash buyer brings. We buy with our own capital and close on a schedule we can actually commit to — which, if you're working a 1031 or timing a tax year, is worth real money.

Send us the basics on your property and we'll give you a number and a timeline you can plan around. Tell us about your property.