Are commercial property sales subject to VAT?
If you’re buying or selling commercial real estate in the United States, the short answer is simple:
No. There is no VAT in the U.S.
But that doesn’t mean your transaction is tax-free.
I’m Matt Bingaman, Commercial Real Estate Advisor, and this is one of the most misunderstood areas of commercial transactions — especially for investors who have done international business.
Let’s break it down clearly.
No VAT in the United States
The U.S. does not use a Value Added Tax (VAT) system like the UK or European Union. When you sell commercial property in the U.S., you are not charged VAT on the transaction.
However, several other taxes absolutely apply.
Capital Gains Tax
If you sell your commercial property for more than your adjusted basis, you owe capital gains tax.
• Held less than 1 year → taxed as ordinary income (up to 37%)
• Held more than 1 year → long-term capital gains (typically 15% or 20%)
This is often the largest tax exposure in a sale.
Depreciation Recapture
Most commercial owners depreciate their property over time. When you sell, the IRS “recaptures” that depreciation — typically at 25%.
This catches many sellers off guard because it applies even if you reinvest profits personally.
Net Investment Income Tax
High-income investors may also owe an additional 3.8% Net Investment Income Tax (NIIT).
State & Local Transfer Taxes
While there’s no VAT, many states and municipalities charge transfer taxes or recording fees. These can range from minimal fees to 1–2% (or more) of the sale price, depending on location.
The 1031 Exchange Advantage
Here’s where commercial real estate becomes powerful.
A properly structured 1031 exchange allows you to defer:
• Capital gains tax
• Depreciation recapture
• NIIT (in most cases)
By reinvesting into a like-kind property, you can legally defer taxes and preserve equity for continued growth. This is one of the most powerful wealth-building tools available in CRE.
What About International Transactions?
If you are buying or selling property in the UK or EU, VAT may apply — sometimes up to 20%.
If you are a foreign seller of U.S. real estate, FIRPTA requires withholding of 15% of the gross sales price.
Cross-border deals require careful tax coordination.
The Bottom Line
U.S. Commercial Sales:
• No VAT
• Yes to capital gains
• Yes to depreciation recapture
• Possibly transfer taxes
• 1031 can defer taxes
Tax planning should start before you list the property — not after you accept an offer.
If you’re preparing to buy or sell, structuring the deal correctly can dramatically impact your net proceeds.