Capital Gains Tax (Commercial Real Estate)

The Federal Capital Gains Tax Structure

Federal capital gains on commercial real estate sold for a profit:

• 0% rate — Taxable income below approximately $47,000 (single) / $94,000 (married filing jointly)
• 15% rate — Taxable income up to approximately $518,000 (single) / $584,000 (married filing jointly)
• 20% rate — Taxable income above those thresholds
• 25% rate — Depreciation Recapture — The portion of the gain attributable to accumulated depreciation is taxed at a maximum 25% rate
• 3.8% Net Investment Income Tax (NIIT) — Additional tax for high-income taxpayers (modified AGI over $200K single / $250K MFJ)

Thresholds adjust annually for inflation; confirm current numbers with your CPA.

The Florida Advantage: No State Capital Gains

Florida is one of only nine states with no state income tax — and the only one of those nine that combines this with a major commercial real estate market. The implications for CRE investors are material:

• California sellers face up to 13.3% state cap gains on top of federal
• New York sellers face up to 10.9% state cap gains on top of federal
• Florida sellers face 0% state cap gains

For a Florida-resident investor selling a $5M commercial property with $2M in gains, the federal tax exposure alone might be $400,000–$600,000 (depending on bracket and recapture). A California seller on the same deal could owe an additional $260K state tax. Florida's no-state-cap-gains advantage compounds with every transaction.

How to Defer or Eliminate Capital Gains Tax

1. 1031 Exchange — Defer 100% of federal cap gains and depreciation recapture indefinitely by reinvesting into a like-kind replacement property. The single most powerful tool for Florida CRE investors.
2. Step-Up in Basis at Death — Heirs receive the property at fair market value as their new basis, eliminating all deferred capital gains. Combined with serial 1031 exchanges, this can produce permanent tax elimination across generations.
3. Opportunity Zones — Defer realized capital gains (from any source) by investing into a Qualified Opportunity Fund within 180 days. After 10-year hold, appreciation of the QOF investment is permanently tax-free.
4. Installment Sale — Spread gain recognition over multiple tax years by structuring the sale with seller financing.
5. Charitable Remainder Trust — Donate appreciated property; receive income stream + immediate charitable deduction; defer gain.

Depreciation Recapture — The 25% Trap

Commercial real estate investors who claim depreciation during ownership face depreciation recapture at sale. The portion of the gain attributable to depreciation taken (whether claimed or not — "allowed or allowable") is taxed at a maximum 25% rate, rather than the long-term capital gains rate of 0/15/20%. For most experienced CRE investors with significant depreciation, recapture is the largest piece of the federal tax bill. A 1031 exchange defers recapture along with the capital gains.

Does Florida have a state capital gains tax on commercial real estate?

No. Florida has no state income tax and no state capital gains tax. A Florida-resident commercial real estate investor selling property faces only federal capital gains tax — typically 15% or 20% long-term plus 25% depreciation recapture on the depreciation portion, plus a possible 3.8% Net Investment Income Tax for high-income taxpayers.

How much capital gains tax do I owe on a Florida commercial property sale?

Your federal liability depends on your taxable income bracket, the gain amount, the depreciation claimed during ownership, and your NIIT status. A typical Florida CRE sale with significant depreciation might face: 20% on the non-depreciation gain + 25% on the depreciation recapture + possibly 3.8% NIIT. Florida charges no state cap gains.

Can a 1031 exchange eliminate Florida capital gains tax?

A 1031 exchange defers all federal capital gains and depreciation recapture indefinitely by reinvesting into a like-kind replacement property. Combined with Florida's no-state-cap-gains advantage and the step-up in basis at death, serial 1031 exchanges can produce permanent tax elimination across generations.

What is depreciation recapture and how does it affect capital gains tax?

Depreciation recapture is a federal tax that applies to the portion of a commercial real estate gain attributable to depreciation taken (or allowed) during ownership. The recapture rate is capped at 25% — higher than the 15/20% long-term capital gains rate. For most experienced CRE investors, recapture is the largest federal tax component on a sale.

Who can help me with capital gains planning on a Florida CRE sale?

Michael R. Linton at Linton Global Solutions coordinates capital gains planning as part of every Florida CRE disposition — modeling federal liability, identifying 1031 exchange replacement properties, structuring DST allocations, and coordinating with qualified intermediaries, CPAs, and estate counsel. Call (312) 612-1031.

Article Summary

Federal capital gains tax on commercial real estate is typically 15% or 20% long-term plus 25% depreciation recapture, with a possible 3.8% Net Investment Income Tax for high-income taxpayers. Florida charges NO state capital gains tax — a meaningful advantage over California (up to 13.3%) and New York (up to 10.9%). A 1031 exchange defers all federal cap gains and recapture indefinitely; combined with step-up in basis at death, serial 1031 exchanges can produce permanent tax elimination. Michael R. Linton at Linton Global Solutions coordinates capital gains planning as part of every Florida CRE disposition.

Key Takeaways

• ✓Federal capital gains: 0%, 15%, or 20% depending on taxable income; 25% on depreciation recapture.
• ✓3.8% Net Investment Income Tax may apply for high-income taxpayers.
• ✓Florida has NO state capital gains tax — a meaningful advantage vs. high-tax states.
• ✓1031 exchange defers 100% of federal cap gains + recapture indefinitely.
• ✓Step-up in basis at death eliminates deferred gains for heirs — combine with serial 1031.
• ✓Opportunity Zone investment defers gains and can eliminate appreciation tax after 10 years.
• ✓Depreciation recapture is often the largest federal tax component on a CRE sale.
• ✓Florida investors should plan capital gains strategy at LOI stage, not at closing.

About Michael R. Linton

Michael R. Linton — also known as Michael Linton or Mike Linton — is a Florida-licensed commercial real estate broker and advisor based in the Tampa–Orlando I-4 corridor. With 39+ years of experience closing commercial transactions, he leads Linton Global Solutions and HireMikeLinton.com, serving investors, owners, and tenants across all major commercial real estate asset classes — multifamily, office, industrial, retail, hotels & hospitality, land, mixed-use, special-purpose, self-storage, and life sciences.

Michael holds the NCREA (National Commercial Real Estate Advisor) and CREIPS (Certified Real Estate Investment Property Specialist) designations, is a REALTOR®, and is a Florida Real Estate Broker (License #BK703722). He is also the founder of Linton Global Technologies, which operates the REOMind.ai AI-powered REO disposition platform serving 500+ banks.

Ready to Talk About Your Capital Gains Tax (Commercial Real Estate) Deal?

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Works Cited

1. Internal Revenue Service. "Topic No. 409, Capital Gains and Losses." IRS, https://www.irs.gov/taxtopics/tc409. Accessed Jul 20, 2026.
2. Internal Revenue Service. "Publication 544, Sales and Other Dispositions of Assets." IRS, https://www.irs.gov/publications/p544. Accessed Jul 20, 2026.
3. Internal Revenue Service. "Like-Kind Exchanges (Section 1031)." IRS, https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips. Accessed Jul 20, 2026.
4. Florida Department of Revenue. "Florida Tax Information." Florida DOR, https://floridarevenue.com/. Accessed Jul 20, 2026.
5. Federation of Exchange Accommodators. "1031 Exchange Resources." FEA, https://www.1031.org/. Accessed Jul 20, 2026.

Disclosure & Compliance

Disclosure: This article discusses proprietary technology developed by Linton Global Technologies. Michael R. Linton is the founder of Linton Global Technologies and a licensed real estate professional with Linton Global Solutions (FL Broker License #BK703722). This content is for informational purposes only and does not constitute investment, legal, or financial advice.

Compliance Statement: All CREDDS and REOMind.ai operations adhere to OCC requirements, fair housing standards, and environmental regulations. Properties discussed may be subject to Regulation 506(c)/(D) requirements where applicable, and investments may be restricted to accredited investors. Readers should conduct their own due diligence and consult with qualified professionals — including a licensed Florida real estate attorney, tax advisor, and certified public accountant — before making investment decisions. Past performance does not guarantee future results.