Should You Keep the Real Estate When You Sell the Business?

When selling a business, one of the most overlooked questions is what to do with the real estate. Whether it's an office building, a warehouse, or a portfolio of locations, the decision to sell or keep the property can have significant tax, cash flow, and long-term wealth implications. And while many owners assume the real estate sale should go hand-in-hand with the business sale, that's not always the best strategy.

 In some cases, keeping the property and becoming the landlord to the new owner creates ongoing income and long-term flexibility. In others, bundling the real estate into the sale creates a cleaner exit and removes future risk.

 Here’s how to evaluate your options:

Step One: Understand How the Real Estate Is Owned

Before you make a decision, it’s important to clarify how the property is held.

• Is the real estate owned personally, or in a separate entity (like an LLC)?

• Is it held inside the business itself, or outside of it?

• Are there family members or partners with partial ownership?

• Has the entity been depreciating the property for years?

These details affect how the property is taxed, what can be separated, and whether a clean transfer is even possible at closing.

If the property is held in the same entity as the business, you may need to restructure ownership ahead of time. This is one of the reasons we recommend starting exit planning years before the actual transaction.

Option 1: Selling the Real Estate With the Business

This is often the cleanest path if:

• The buyer wants full control of the space

• You no longer want to be tied to the property

• The location is highly specific to the business operations

• There are no compelling tax reasons to retain ownership

Bundling the property into the sale may:

• Increase the size of the total transaction

• Reduce ongoing involvement after the sale

• Eliminate potential headaches related to repairs, tenants, or liability

• Create a single event for tax and estate planning purposes

However, this can also result in a larger tax hit in a single year. If the property has appreciated significantly, or if depreciation recapture applies, the gain may be taxed at less favorable rates than the business itself.

Option 2: Keeping the Real Estate and Becoming the Landlord

In many cases, the owner retains the property and leases it to the buyer. This creates a predictable income stream and allows the seller to stay connected to the business in a passive role.

Reasons to consider keeping the real estate:

• The building is fully paid off and produces strong cash flow

• You want long-term income without operational involvement

• The business buyer prefers to lease rather than buy

• You plan to pass the property to heirs or hold it in trust

• You want to defer capital gains and reduce your current year tax liability

There are tax advantages too. Keeping the property allows continued depreciation and may support installment sale strategies or 1031 exchanges down the road. If structured correctly, the rental income can be a core part of your retirement plan.

Keep in mind that holding the real estate also means holding the risk. Vacancy, maintenance costs, and shifting property values remain your responsibility.

Tax Timing and Capital Gains Considerations

Real estate held for a long time typically comes with significant unrealized gains and accumulated depreciation. If you sell both the business and property in the same year, it can push you into the highest tax brackets.

Strategies to reduce the tax burden may include:

• Separating the two sales across different tax years

• Using a charitable remainder trust (CRT) for part of the real estate gain

• Deferring capital gains through a 1031 exchange

• Donating a portion of the property to a donor-advised fund before sale

Each strategy requires advance planning. Waiting until you are in contract with a buyer may eliminate some of these options entirely.

What Does Your Next Chapter Require?

Deciding whether to sell or hold real estate is not just about valuation. It is also about what you want your life to look like after the sale.

• Do you want to simplify your holdings and eliminate risk?

• Or do you want to preserve a source of recurring income for yourself or your family?

• Do you have a plan for managing the property, or would that become a burden?

• Will the new owners honor lease terms, or are you opening yourself up to future disputes?

You built the business. Now you get to decide what role, if any, you want the real estate to play in the next phase.

We Help You Decide With Clarity

At Veritas, we work with business owners on both sides of this decision. We model the tax impact of selling or keeping the real estate, coordinate with your estate and tax advisors, and help build a strategy that aligns with your long-term goals.

If you’re preparing for a sale and want to explore your options, we can help you decide from a position of clarity, not pressure.  It all starts with a conversation.

Any discussion of taxes is for general information purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax, or accounting advice. Clients should consult with their qualified legal, tax, and accounting advisors before implementing any strategy discussed herein. CRN202809-9699116.