List Self Storage
30665 Northwestern Highway Suite 100
Farmington Hills, MI 48334 USA
Phone: (248) 957-1616
Fax: (248) 538-4327
Email: info@ListSelfStorage.com

Tax Mitigation Strategies

Date: 1/10/2019

Deciding to sell your self storage business can bring up a lot of questions. One big question that sellers typically have is about taxes and how they will impact the sale.

When it comes to tax mitigation, there are several strategies and tactics that may be right for you and your circumstances. Tax mitigation involves the use of the law to achieve anticipated tax advantages embedded in tax provisions.

There are many different strategies to taxes. These are a few options that might be right for you:

1031 Exchange

A 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes.

Pros

Cons

Reverse 1031 Exchange

A reverse 1031 exchange is a tax deferment strategy that is used when the replacement property must be purchased before the old property is sold.

Pros

Cons

Selling the entity vs the real estate 

Businesses can be sold and their assets transferred, either through an asset sale or an entity sale.

Pros

Cons

UPREIT structure/OP units 

‘UPREIT’ is short for “umbrella partnership real estate investment trust” and is an alternative to a 1031 like-kind exchange as a way to defer capital gains liability when an individual or company wants to sell appreciated real estate. Instead of selling the property, the owner contributes it to an UPREIT in exchange for securities called "operating partnership units" or "limited partnership units."

Pros

Cons

Installment sale

An installment sale is a sale of property in exchange for a promissory note and at least one payment after the tax year in which the sale occurs.

Pros

Cons

Sell and pay your taxes

Selling your assets and paying your taxes can provide you with liquidity, which provides you with the ability to de-risk and diversify your investment portfolio.

Pros

Cons

Do not sell and hand down to kids 

Holding on to your property and eventually passing it down to your children could potentially prevent you from paying taxes.

Pros

Cons

Do not sell and refinance and pull out equity tax free

Refinancing your property and pulling out equity tax free is a great option if you are looking to free up capital.

Pros

Cons

Understanding how the structure of your business will affect your exit strategy is a key element to executing a successful exit plan. Knowing the tax implications of a sale will give you a clearer picture of what the sale means in real after-tax dollars and will provide you with the knowledge needed to make the best decision in terms of the tax mitigation strategies you choose to implement.

About SkyView Advisors

SkyView Advisors have completed more than $1.8 billion of career transactions. SkyView is unique in the industry with its exclusive focus on self storage purchase and sale. For more information about calculating cap rate or about obtaining a professional valuation of your self storage property, contact SkyView to arrange a consultation.