Retail Real Estate Challenges? Win with This Advanced Technique!
Marc Perlof • October 12, 2023
Hey Retail Real Estate Rockstars! Here are some challenges of Long-Term Retail Real Estate Ownership for Property Owners and their Solutions
1. Fixed Rents vs. Market Rents:
- Challenge: Long-term leases might be locked in at rates below the current market value.
- 1031 Solution: Use a 1031 exchange to sell underperforming properties and reinvest in properties with higher rental potential or in areas with rising market rents, deferring capital gains taxes in the process ¹.
2. Reduced Flexibility:
- Challenge: Being tied to a specific property type or location can limit adaptability.
- 1031 Solution: If a property no longer aligns with market demands, utilize a 1031 exchange to transition into a more suitable property type or a more promising location, all while deferring taxes ².
3. Maintenance and Upkeep:
- Challenge: Aging properties can require significant maintenance.
- 1031 Solution: Instead of continually investing in an aging property, consider using a 1031 exchange to transition into a newer property that requires less upkeep, preserving capital and deferring tax liabilities ³.
4. Changing Consumer Behavior:
- Challenge: The evolving retail landscape might make some properties less competitive.
- 1031 Solution: Use a 1031 exchange to transition from properties that no longer align with consumer trends to those that do, such as transitioning from traditional retail spaces to experiential retail or mixed-use properties.
5. Economic Fluctuations:
- Challenge: Economic downturns can lead to property depreciation.
- 1031 Solution: If a property is at risk of significant depreciation due to economic factors, a 1031 exchange can be used to move investments to more economically stable areas or into different types of properties that might be more resilient.
The Bottom Line
The 1031 tax-deferred exchange is a powerful tool for property owners to navigate the challenges of long-term ownership. By strategically leveraging this provision, owners can adapt to changing market conditions, optimize their portfolios, and defer significant tax liabilities.
Attention retail real estate property owners! Don't let your investments stagnate. Harness the transformative power of the 1031 exchange to rejuvenate your portfolio, optimize returns, and stay ahead of the curve. Dive in now and discover the magic of tax-smart investing! Call, Text, or DM me for more information.
Have you ever wondered how top real estate moguls continuously upgrade their portfolios without the tax burden? The answer might be simpler than you think!
#RetailRealEstate #1031Exchange #MarcRetailGuy #TaxSmartInvesting #AdaptAndProsper
https://legal1031.com/1031-exchange-resources/the-benefits-of-a-1031-exchange/
2. https://legal1031.com/1031-exchange-resources/the-benefits-of-a-1031-exchange/
3. https://legal1031.com/1031-exchange-resources/the-benefits-of-a-1031-exchange/
Cherished Malibu Seafood Shack The Reel Inn May Rebuild After State Reversal  Malibu’s one-of-a-kind seafood spot, The Reel Inn, may once again serve its signature fish puns and fried and grilled platters on Pacific Coast Highway after the state reversed its earlier position that blocked the restaurant’s return, according to Eater LA...
Hey, Retail Real Estate Rockstars! The Big Beautiful Bill (H.R. 1) has completely changed the rules for State and Local Taxes (SALT), which is great news for any property owner who has ever cringed when they see their tax bill. For those of you investing in retail real estate, this is the kind of victory that calls for a double espresso and a fresh pro forma. We're talking about actual tax relief in 2025. Let's dissect it. What Just Happened? The SALT deduction cap, once stuck at $10,000 per household, has officially increased to $40,000 for joint filers and $20,000 for single filers — but only between 2025 and 2029. After that, it’s back to the old cap unless Congress re-ups¹. Important Clarification for Property Owners While the IRS frames the new SALT cap in terms of individual filers ($20,000 single / $40,000 joint), the impact depends on how your retail property is owned: LLCs, Partnerships, and S-Corporations (Pass-Throughs): Income, expenses, and property taxes flow through to the owners’ personal returns. The higher SALT cap allows greater deductions here, boosting post-tax cash flow for the individual owners. Trusts & Estates: Similar pass-through treatment, meaning beneficiaries or trustees may capture the benefit depending on structure. C-Corporations: The SALT cap generally doesn’t apply, since corporate taxes are calculated differently and deductions follow corporate rules. REITs (Public or Private): REITs have their own tax regime, but shareholders who receive pass-through income may benefit at the individual level. Direct Individual Ownership: If you hold the property in your own name, property taxes fall directly under the SALT deduction rules. If you live in a high-tax state like California, New York, or New Jersey, this means you can deduct a lot more of your state income, property, and local sales taxes on your federal returns. Why Retail Property Owners Should Care More Deductible Property Taxes You can lower your taxable income on your federal return by deducting a larger portion of your high property taxes on retail assets. Boosts Post-Tax Cash Flow Increased deductions = less tax paid = more cash in your pocket. Offsets Reassessment or NNN CAM Spikes With inflation and property tax reassessments squeezing margins, this SALT cap increase gives you some room to breathe¹. Attractive to High-Income Buyers New investors seeking tax efficiency may find your retail property more alluring if you offer larger deductions. Strategic Planning Window: 2025–2029 These changes expire after 2029, so use this window wisely — structure sales, 1031 exchanges, or renovations when you can best leverage the deduction bump¹. Real Data, Real Impact The original SALT cap from the 2017 Tax Cuts and Jobs Act was projected to cost Californians alone over $12 billion in lost deductions annually². Nearly 30% of households in high-cost areas maxed out the previous SALT deduction limit². What About NNN Leases? Here’s the twist: if your property is on a triple-net (NNN) lease, your tenants — not you — pay the property taxes. For Landlords: The SALT cap change doesn’t directly benefit you, since you aren’t the one writing the property tax check. For Tenants: They may be able to deduct more of those property taxes on their federal returns, depending on how their business or personal tax filings are structured¹. Smart Move: Share this info with your tenants. Suggested Subject Line for Tenant Email: “You May Benefit from New Tax Deduction Rules (H.R. 1)” A simple note saying, “The new federal tax law (H.R. 1) increased the SALT deduction cap for 2025–2029. Since you pay property taxes under your NNN lease, this may be relevant for your tax planning. Please confirm with your CPA.” That small gesture positions you as knowledgeable, supportive, and proactive — which builds goodwill and strengthens tenant relationships. If you’re considering a sale, refinance, or exchange between now and 2029, let’s talk strategy while this deduction window is wide open #RetailRealEstate #CommercialRealEstate #TaxStrategy #SALTdeduction #PropertyOwners
The Iconic Reel Inn Malibu To Say Goodbye After 36 Years Plans to resurrect The Reel Inn Malibu after the Palisades Fire have been shelved following a decision by the California Department of Parks and Recreation not to renew the restaurant’s lease, as reported by The Wall Street Journal. The move effectively closes a 36-year chapter for the 144-seat seafood shack on Pacific Coast Highway, long recognizable for surfboards on the walls, clever signage, chalkboard menus, and the relaxed Malibu customers...
