Tips for navigating commercial real estate transactions

A real estate attorney knows that there can be complicated legal issues associated with a real estate transaction.

For example, readers may be aware that selling a home may involve paying capital gains tax on its appreciation. With a real estate investment, however, depreciation may work differently. Buildings purchased for the purpose of investment can be depreciated over a period of years, perhaps reaching a value of zero. When it comes time to sell the investment, a commercial seller may be able to declare a tax loss on that investment property.

Other sales of property held for business or investment purposes may qualify for “like-kind exchanges” pursuant to Section 1031 of the Internal Revenue Code. An individual or company may sell qualifying property, reinvest the proceeds in new property, and benefit from deferred capital gains taxes. However, land might not be included as eligible 1031 property, depending on the circumstances. As a result, an attorney that focuses on real estate transactions may be needed to help a seller structure a proposed transaction in the most favorable terms for both a building and its land.

A real estate attorney can provide a full spectrum of services to a commercial real estate seller. Commercial real estate transactions often involve a stipulated due diligence period during which a prospective buyer can investigate the property before its purchase.

However, the due diligence period generally runs only after the prospective buyer has made an offer. Before reaching that point, the parties may have undergone weeks or even months of negotiations. An attorney can represent a commercial seller during that bargaining period and respond to the prospective buyer’s questions.

Source: Internal Revenue Service, “Like-Kind Exchanges Under IRC Code Section 1031,” Feb. 2008