What Are the Tax Implications as a Seller Upon Closing?

If you’re considering selling your commercial property in Florida, you’re likely focused on maximizing your return and ensuring a smooth transaction. But one critical aspect that often gets overlooked until the last minute is the tax implications of your sale. At REACH Commercial Real Estate, we believe that understanding your tax obligations before closing is essential for smart financial planning and peace of mind, especially given Florida’s unique tax environment.

Understanding Capital Gains Tax

The most significant tax consideration for most sellers is the capital gains tax. When you sell a commercial property, the difference between your sale price and your adjusted basis (what you paid for the property, plus improvements, minus depreciation) is considered a capital gain. This gain is subject to federal taxes, and for individuals, long-term capital gains (on properties held for more than a year) are typically taxed at rates ranging from 15% to 20%, depending on your income bracket. Short-term gains (on properties held for less than a year) are taxed as ordinary income, which can be significantly higher.

Florida Advantage: Unlike many other states, Florida does not impose a state income tax on individuals. This means you will not owe state capital gains tax on your commercial property sale—your primary tax obligation will be to the federal government. This is a significant benefit for Florida sellers and can increase your net proceeds compared to selling in states with high capital gains taxes.

Depreciation Recapture

If you’ve claimed depreciation deductions on your property over the years, you’ll need to account for depreciation recapture upon sale. The IRS requires you to “recapture” the depreciation by taxing it at a higher rate—currently up to 25%. This can come as a surprise to many sellers, so it’s crucial to factor this into your net proceeds calculation. Again, Florida does not add any additional state tax on this recapture for individuals.

Florida Documentary Stamp Tax

While Florida doesn’t tax your capital gains, it does impose a documentary stamp tax on the transfer of real estate. This is a transfer tax paid at closing, typically at a rate of $0.70 per $100 of the sale price (with Miami-Dade County at $0.60 per $100, plus a surtax on certain transactions). This tax is usually paid by the seller, but it can be negotiated in your contract. It’s important to include this cost in your closing calculations, as it can be a substantial amount depending on your sale price.

Corporate Sellers in Florida

If your property is owned by a corporation or LLC, Florida does have a state corporate income tax (currently 5.5% as of 2025). If your entity realizes a gain from the sale, it may be subject to this tax, so it’s important to consult with your tax advisor to understand your specific obligations.

1031 Exchange: Deferring Taxes

One of the most powerful tools available to commercial real estate sellers is the 1031 exchange. This IRS provision allows you to defer paying federal capital gains taxes if you reinvest the proceeds from your sale into a “like-kind” property within a specific timeframe. While a 1031 exchange doesn’t eliminate your tax liability, it can help you grow your portfolio and defer taxes until a later date. The rules are strict, so working with experienced professionals is a must.

Withholding Requirements

Depending on your residency status, there may be withholding requirements at closing. For example, the Foreign Investment in Real Property Tax Act (FIRPTA) requires buyers to withhold a percentage of the sale price if the seller is a foreign person. These withholdings are not additional taxes but are applied toward your final tax bill.

Reporting and Documentation

After closing, you’ll need to report the sale to the IRS, typically using Form 4797 or Schedule D, depending on your situation. You’ll also receive a Form 1099-S from the closing agent, which reports the gross proceeds of the sale. Keeping thorough records of your purchase price, improvements, depreciation, and selling expenses is essential for accurately calculating your gain and minimizing your tax liability.

Plan Ahead with REACH Commercial Real Estate

At REACH Commercial Real Estate, we understand that every transaction is unique. The tax implications as a seller in Florida can be complex, but with proper planning and the right team, you can maximize your after-tax proceeds and avoid surprises at closing. We work closely with your legal and tax advisors to ensure you’re fully informed and prepared.

If you’re considering selling your commercial property in Florida, contact REACH Commercial Real Estate today. We’ll guide you through every step of the process, from listing to closing, and help you navigate the tax landscape with confidence.

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