Buying Income Property In Florida: Rules For Executing A Tax-Free Exchange

Aug 13, 2013

Whoever said that there are two things that everyone must do – die and pay taxes – probably coined the epigram before the invention of 1031 exchanges, which allow investors
to trade income properties in an exchange that defers capital gains tax.

If the income property is ever sold in a traditional sale, the seller must pay the deferred tax, plus any capital gains tax that has accrued in the meantime.

The opportunity to trade income property in 1031 exchanges is a significant financial advantage for investors, but there are certain criteria that the exchange must meet to be tax-free. If you plan to acquire commercial income properties in Florida in a 1031 exchange, be sure that you are familiar with the following rules. Otherwise, the exchange may become subject to capital gains tax.

  • Rule #1: The value of the replacement property must be at least equal to the value of the relinquished property.
  • Rule #2: The equity in the replacement property must be at least equal to the equity in the relinquished property.
  • Rule #3: The debt on the replacement property must be at least equal to the debt on the relinquished property.
  • Rule #4: All net proceeds from selling the relinquished property must be used to purchase the replacement property.

Observing these rules helps to ensure that the income property is acquired without the investor paying capital gains tax. However, these are not the only stipulations that investors must follow to keep the exchange tax-free. They must also avoid taking constructive receipt of the proceeds from the relinquished property until a suitable replacement property is identified.

Westwood Net Lease Advisors aids investors in structuring 1031 exchanges in a way that meets our clients’ investment goals. For example, a built-to-suit exchange that lets investors upgrade the acquired property using proceeds from the sale of the initial investment property is a common transactional structure.


If so, Westwood Net Lease Advisors is the company to call. With our expertise in structuring and facilitating 1031 exchanges in Florida and other states, and our access to a proprietary database of on-market and off-market investment properties across the U.S., we will serve as your single resource for acquiring income properties in tax-free exchanges.


Looking To Buy Commercial Property?

Find out why triple-net lease real estate investments should be part of your investment portfolio.