No matter what industry you are in, starting a successful business is rarely easy. Although the world is becoming increasingly digital every day, many businesses still require a physical office space to host staff, meetings, and daily business administration. On top of a lease or purchase, a successful office space also requires a significant amount of capital sunk into furniture, equipment, and other small assets.
If your business has decided to liquidate, selling office furniture and equipment is a great way to earn cash outside of ordinary company operations. Whether the capital is used to keep your business afloat or simply to recoup losses, the bulk sale of office furniture and equipment is likely to come with a large cash inflow.
For large businesses with a significant amount of office space, pricey equipment sales are likely to warrant capital gains taxes, even through bankruptcy. In order to defer capital gains taxes, businesses and individuals can utilize a 1031 exchange with the purchase of a new property. In this article, we will break down the 1031 exchange process when selling your office’s assets.
How to Sell Office Furniture and Equipment
First, let’s look at the office furniture sales process. If you only have a handful of desks, some old computers, and a copier, then it will be very easy to find a buyer through traditional peer-to-peer marketing channels. Both physical and digital, this includes:
- Word of mouth/networking in the building and nearby
- Or local listing sites like Craigslist, Facebook Marketplace, etc.
For small sales, a few hundred dollars will not warrant any capital gains taxes be applied. In large office downsizes, moves, and liquidations, however, a large sum of assets can quickly reach price tags of tens of thousands of dollars. Today, many large companies utilize consulting agencies and assert intermediaries to facilitate an easy and quickly profitable sales process.
Determining the Value of Office Furniture and Equipment
To keep it simple, the total value of an office overhaul sale is just the sum of all of its parts. Although many things cannot be sold (like the coffee machine that should have been replaced years ago), a lot of furniture and equipment within an office retains its value quite well. While the true value of your furniture and equipment is simply what the buyer is willing to pay, you can get a baseline valuation by totaling your sellable assets. This includes:
- Desks, chairs, and tables
- Computers, phones, and other electronic devices
- Cabinets, bookshelves, and misc hardware
- Copiers, printers, shredders, and other appliances
- Any diminishing assets on hand (printer ink, paper, stationery, etc.)
As ordinary wear and tear are minimal, office administrators with assets less than 10 years old can typically earn back over 50% of their initial investment. If you are working with an agency, they may ask for your proof of purchase receipts as well as any maintenance history for large appliances.
Taxes Paid on Selling Office Furniture and Equipment
If you are selling your office furniture and equipment as part of a large corporate takeover, then all of its value will be bundled with the overall deal. However, if you are selling the office assets to a private party (business or individual) as a one time deal, then federal and local taxes will be applied. This includes sales tax and capital gains taxes.
Selling Office Furniture and Equipment with a 1031 Exchange
Thankfully, every penny of capital gains taxes applied to the sale of office furniture and equipment can be deferred by purchasing an equal or greater valued asset through a 1031 exchange. For many businesses strapped for cash, 1031 exchanges are extremely valuable for both maximizing the sale and investing in new businesses assets for future growth. It is also possible to invest in assets that have a lower value than your sold equipment, however only partial capital gains taxes would be deferred in these instances.
Office Furniture and Equipment Like-Kind Properties
The key element of a 1031 exchange is the investment in a new “like-kind” property. The IRS views most property assets (both physical and non-tangible) as like-kind properties for office furniture and equipment. For example, a large liquidation of office assets can be sold in a 1031 exchange if a company were to subsequently purchase:
- Other kinds of equipment
- Cars, trucks, vehicles, etc.
- A new office building or manufacturing facility
- Private property investments (apartments, new construction, etc.)
- Mineral rights and royalties
Office Furniture and Equipment 1031 Exchange Timeline
Once your furniture and equipment are sold to the new buyer, an entities’ eligibility for a 1031 exchange begins. In order to remain valid, the taxpayer must submit at least one of three plausible new assets within 45 days of the sale. Ultimately, the company must purchase a new asset (or multiple bundled assets) within 180 days of the sale of office equipment in a 1031 exchange.
1031 Exchange Intermediaries for Selling Office Furniture and Equipment
As we have alluded to earlier, there are many consultants and intermediaries that specialize in the liquidation and sale of office equipment and furniture. In order to meet deadlines and maximize the value of your transition, it is strongly recommended to sell office furniture with the help of a third party.
Why Purchase Mineral Rights and Royalties?
Although it might be a bit of a left turn for most individuals and companies, investing in mineral rights and royalties is actually one of the best ways to maximize the value of a 1031 exchange. When selling office furniture and equipment, a reinvestment in mineral rights is a quick way to liquidize while setting up a new potential value stream.
Once purchased, mineral rights can then be leased to oil and gas companies in exchange for ongoing mineral royalties. Oil and gas leases are designed to compensate mineral rights owners over time as successful operations are able to find, extract, and sell natural resources to help fuel today’s world.