For first time sellers and experienced investors, gas stations can be purchased, improved, and sold for tremendous profit margins. With more and more cars on the road every year, gas stations are a staple of the American road system, providing food and fuel to travelers on roads both large and small.
Today, the sale of a gas station can be maximized by using a 1031 exchange. In trading for another property, capital gains taxes are deferred and more of the proceeds from a gas station sale can be used for reinvestment.
In this article, we will explain and outline the steps that need to be taken in order to 1031 exchange gas stations. In doing so, we will also make the case for mineral rights and royalties as one of the best possible ways to continue to benefit from the sale.
How to Sell A Gas Station
In order to 1031 exchange gas station, you must first obviously sell it. Selling gas is easy, but selling a gas station isn’t as so. Gas stations are a highly specialized kind of property unlike any other commercial real estate of its kind. Knowing this, the process of selling a gas station may be more laborious than you originally anticipated.
With that being said, gas stations are located practically everywhere across the country, as nearly every town in America is home to one or two. This familiarity makes the sale of a gas station more likely among investors looking to buy a property type that has stood the test of time.
For the most part, gas stations are sold with the help of a specialized, commercial real estate agent. This is most commonly true in big cities and towns. However, in highway communities across the country, a gas station may likely be one of the highest valued properties in the area.
Determining the Value of A Gas Station
Today, gas stations are typically sold in online listings or through word of mouth. Gas stations are sold on the open market and can only truly be valued by the highest purchasing bid. Although some abandoned facilities will go to auction, typically gas stations are sold after negotiations of a predetermined sales price.
As the sum of many different parts, the total value of a gas station can be determined by summing the following considerations:
- Property size and condition
- Number of buildings, size, and conditions
- Number of filling stations
- Bonus facilities (car wash, air pumps, etc.)
- Branded affiliations (both for store and gas pumps)
- Business records, profit and loss statements, etc.
- Transferable employees
- Current supply chain relationships
- And more
So clearly, there are a ton of things to consider before putting a price on your property. If possible, locate the properties appraisal records, as well as the previous listing prices for other gas stations in the local vicinity.
Taxes Paid on the Selling Gas Stations
As both a business and a property, gas stations are often sold for significant amounts of money. Of course, for every dollar that a gas station is sold for, more taxes are applied to the sale by local and federal governments. When selling a gas station, the following are usually applied:
- Federal Income Taxes
- Capital Gains Taxes
- Sales Taxes
- Local Taxes
- And More
1031 Exchange Gas Stations
Of course, savvy investors trying to pinch every penny from their sale are well aware that 1031 exchanging gas stations can partially or completely eliminate capital income taxes paid on the sale of a gas station. By “trading-up,” for a new property, the IRS allows for capital gains taxes to be avoided if the same taxpayer simply reinvests their money elsewhere.
Gas Station Like-Kind Properties
Of course, you can’t use a 1031 exchange to trade just anything for a gas station. Instead, the property must be considered to be “like-kind” in the eyes of the IRS. Thankfully, most physical assets qualify as similar enough to gas stations in order to qualify for a 1031 exchange.
For instance, the following can be considered like-kind properties:
- Strip malls and shopping centers
- Trailer parks
- Water and ditch rights
- Mineral rights and royalties
- Office buildings
- And more
1031 Exchange Gas Station – Timeline
Gas stations can take a considerable amount of time to sell, so it is a good idea to consider what you might use a 1031 exchange to purchase even before you are headed to a large check. This is especially true because at least one property must be identified in the first 45 days after the sale of a gas station. Beyond that, taxpayers have just 180 days, or roughly 6 months to purchase a new property in a 1031 gas station exchange.
Failure to meet deadlines and file paperwork on time is typically not forgiven by the IRS. With this in mind, it is strongly recommended to work with a 1031 exchange intermediary when maximizing the reinvestment of your funds.
For additional requirements, please see our 1031 Exchange Rules and Requirements Page.
What to 1031 Exchange Gas Stations For
Mineral rights and royalties are a highly profitable venture that many American investors are still unaware of. The truth is, for the past 100 years, mineral rights owners have been leasing their subsurface property to oil and gas companies in exchange for sizable mineral royalty checks.
In a sense, selling a gas station and purchasing mineral rights is kind of like selling your house and buying a quarry that exports building materials. By going “back to the source,” an investment in mineral rights is a largely passive income stream that does not require the maintenance and upkeep as a gas station does.
In conclusion, gas stations are highly valuable, which is why it is important to maximize the proceeds when selling one on the open market. By utilizing a 1031 gas station exchange it is possible to defer tens of thousands of dollars in capital gains taxes that would have been otherwise paid. Although the choice is yours to reinvest in any kind of property, mineral rights and royalties are an easy way to stay profiting in the oil industry with significantly less time and effort.