What is the Net Investment Income Tax (NIIT) and does it apply to commercial real estate?

The Net Investment Income Tax (NIIT) is a 3.8% federal surtax that applies to investment income — including capital gains from commercial real estate sales — for individuals with a Modified Adjusted Gross Income above $200,000 (single) or $250,000 (married filing jointly). For high-value commercial transactions, this tax almost always applies.

Capital Gains Tax Guide — Massachusetts & New Hampshire

Capital Gains Tax on Commercial Real Estate in Massachusetts & New Hampshire

Name: MANSARD Commercial Properties
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Most owners focus on the sale price. The number that actually determines your outcome is what you keep after federal taxes, state taxes, and depreciation recapture are settled. For owners in MA and NH, that gap is larger — and more avoidable — than you think.

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Informational only. Not legal or tax advice. Consult a qualified CPA before making decisions.

Net Proceeds Reality How Gains Are Calculated Federal Taxes Massachusetts New Hampshire 1031 Exchange Pre-Sale Strategy FAQ Partner with MANSARD

Section 1

The Net Proceeds Reality Check

When commercial property owners consider selling an asset, the conversation almost always begins with a single question: "What can I get for the property?" A much more important question is: "What will I actually walk away with after the sale?"

Many property owners experience significant frustration because they do not thoroughly examine the tax impact of a sale until they are already deep into the transaction process. By the time a buyer is secured, the opportunity to implement strategic tax planning has largely vanished. A sale that looks incredibly strong on paper can feel very different once federal taxes, state taxes, and depreciation recapture are factored into the net proceeds.

Tax planning must commence before a property goes to market. This guide breaks down the complex layers of capital gains taxes affecting commercial real estate sellers in Massachusetts and New Hampshire — so you can make the right decision before you commit to any path.

Section 2

How Capital Gains Are Calculated on Commercial Real Estate

Capital gains tax is not simply applied to your final sale price. It is levied on the gain you realize — the difference between your sale price and your adjusted basis in the property.

Your adjusted basis is calculated as follows:

1

Start with Purchase Price

Begin with the original price you paid to acquire the property.

2

Add Capital Improvements

Add the cost of any qualifying capital improvements made during your holding period.

3

Subtract Depreciation Taken

Subtract all depreciation deductions claimed during ownership. This is where most owners are surprised — depreciation reduces your basis, which increases your taxable gain.

The amount by which your sale price exceeds your adjusted basis is your taxable capital gain. Because depreciation reduces your basis, it inherently increases the taxable gain upon sale — a factor that frequently catches owners off guard.

Section 3

Federal Tax Implications for Commercial Real Estate Sellers

Before analyzing state-level liabilities, commercial real estate owners must account for three primary federal tax mechanisms that will impact their net proceeds.

Short-Term vs. Long-Term Capital Gains

The IRS taxes capital gains differently based on how long you held the asset before selling.

Short-Term Capital Gains (held ≤ 1 year): Taxed as ordinary income — up to a top federal marginal rate of 37% in 2025.
Long-Term Capital Gains (held > 1 year): Taxed at preferential rates of 0%, 15%, or 20% depending on your taxable income and filing status.

Depreciation Recapture (Section 1250)

One of the most significant advantages of owning commercial real estate is the ability to deduct depreciation from your taxable income over the life of the asset. However, the IRS requires you to "pay back" a portion of those tax savings when you sell at a gain — a mechanism known as depreciation recapture (unrecaptured Section 1250 gain). The portion of your capital gain attributable to prior depreciation deductions is taxed at a maximum federal rate of 25%. Many owners underestimate this liability until it is too late to plan around it. Read our full guide to depreciation recapture on commercial real estate →

Net Investment Income Tax (NIIT)

High-income earners face an additional federal liability: the Net Investment Income Tax (NIIT), which imposes an extra 3.8% surtax on investment income — including capital gains from commercial real estate. For 2025, the NIIT applies to individuals with Modified Adjusted Gross Income (MAGI) exceeding:

$200,000 for single filers and heads of household.
$250,000 for married couples filing jointly.

When combined with the top federal long-term capital gains rate of 20%, the NIIT can push your effective federal rate on real estate gains to 23.8% — before any state taxes are applied.

Sections 4 & 5

Massachusetts & New Hampshire Commercial Real Estate Tax Comparison

The state you sell in has a dramatic impact on your net proceeds. Massachusetts and New Hampshire represent two of the most distinct tax environments in New England.

Massachusetts

Higher Tax Burden

Long-Term Capital Gains: Taxed at a flat 5.0% state rate for assets held more than one year.

Short-Term Capital Gains: Taxed at 8.5% for assets held one year or less.

The Millionaire's Tax (4% Surtax): Massachusetts imposes an additional 4.0% surtax on all annual taxable income exceeding $1,107,750 (2026). Because commercial real estate transactions frequently involve multi-million-dollar valuations, a single sale can easily push an owner above this threshold — raising the effective state rate to 9.0% on long-term gains and 12.5% on short-term gains. Read our full guide to the Massachusetts Millionaire's Tax →

New Hampshire

No State Capital Gains Tax

No State Capital Gains Tax: New Hampshire does not levy a state-level capital gains tax on the sale of real estate.

I&D Tax Repealed: The state's Interest and Dividends (I&D) Tax was fully phased out and repealed effective January 1, 2025. NH sellers are only subject to federal capital gains, depreciation recapture, and NIIT.

Real Estate Transfer Tax (RETT): NH imposes a 1.5% RETT on the total purchase price, typically split evenly between buyer and seller (0.75% each). The RETT also applies to transfers of controlling interests in LLCs that own NH real estate.

Massachusetts Effective Tax Rate Summary

Gain Type	Base MA Rate	+ Millionaire's Surtax	Max Effective MA Rate
Long-Term (> 1 year)	5.0%	+ 4.0%	9.0%
Short-Term (≤ 1 year)	8.5%	+ 4.0%	12.5%

Section 6

How to Use a 1031 Exchange in Massachusetts & New Hampshire to Defer Capital Gains Tax

For owners facing steep federal and state tax liabilities, a Section 1031 like-kind exchange is frequently evaluated as a potential solution. A 1031 exchange allows an investor to defer federal and state capital gains taxes, depreciation recapture, and the NIIT by reinvesting the proceeds from the sale of one investment property into another qualifying like-kind property. Read our complete 1031 exchange guide for MA & NH commercial real estate →

While highly effective for wealth preservation, a 1031 exchange is governed by strict IRS rules and timelines:

The 45-Day Identification Rule: You must formally identify potential replacement properties within 45 days of closing the sale of your relinquished property.
The 180-Day Closing Rule: You must successfully close on the replacement property within 180 days of the original sale.
The Qualified Intermediary (QI) Requirement: You cannot take constructive receipt of the sale proceeds at any time. The funds must be held and transferred by an independent, credentialed, and bonded Qualified Intermediary.
The "Boot" Rule: Any cash or debt relief not reinvested into the replacement property — known as "boot" — is immediately subject to taxation.

The Strategic Reality: A 1031 exchange is not automatically the right answer for every seller. The rigid 45-day identification window can create immense pressure, sometimes forcing investors into sub-optimal replacement properties simply to avoid taxes. The driving question should never be "How do I avoid taxes at all costs?" — it should be "What is the best overall strategic decision for my capital?"

Section 7

Pre-Sale Strategy Framework: Protect Your Net Proceeds Before You List

If you are considering selling a commercial property in Massachusetts or New Hampshire, taking proactive steps before you list the asset is the only way to protect your net proceeds.

1

Understand Your Likely Value Range

Work with a commercial real estate advisor to determine what your property can realistically command in the current market, based on actual comparables and buyer demand.

2

Review Your Basis & Depreciation History

Engage your CPA or tax advisor early. Calculate your adjusted basis and model your exact exposure to depreciation recapture and federal capital gains before you price the asset.

3

Assess Massachusetts Surtax Exposure

If your property is in Massachusetts, model how the sale will interact with the 4% Millionaire's Tax. Explore whether an installment sale — spreading payments over multiple tax years — could keep your annual income below the $1,083,150 threshold.

4

Evaluate 1031 Exchange Early

If a 1031 exchange is on the table, begin evaluating replacement markets and asset classes before your current property goes under contract. Do not let the 45-day clock dictate your investment strategy.

5

Build a Comprehensive Pre-Sale Strategy

Align your property positioning, target buyer profile, and deal structure to maximize the capital you keep — not just the headline price you achieve.

Section 8

Frequently Asked Questions: Capital Gains Tax on Commercial Real Estate

You do not need the figure down to the exact penny, but you should have a highly accurate, CPA-verified estimate of your tax exposure before you go to market. Without this, you cannot accurately evaluate offers or understand your true net proceeds.

No. A 1031 exchange defers taxes — it does not eliminate them. If you eventually sell the replacement property without conducting another exchange, the deferred taxes will become due. However, taxes can ultimately be eliminated upon the owner's death, as heirs generally receive a step-up in basis to the property's fair market value at that time.

No. New Hampshire does not levy a state-level capital gains tax. However, sellers must still pay federal capital gains taxes and the state's Real Estate Transfer Tax (RETT), which is 1.5% of the purchase price and is typically split with the buyer.

If your total taxable income — including your salary, investments, and the profit from your commercial property sale — exceeds $1,083,150 in 2025, the amount above that threshold is subject to an additional 4% state surtax. This effectively raises the maximum state capital gains rate to 9% for long-term gains and 12.5% for short-term gains.

Absolutely. If taxes will materially affect your financial outcome — and for most commercial property owners they will — consulting your CPA or tax advisor before taking the property to market is an essential step, not an optional one.

The NIIT is a 3.8% federal surtax on investment income — including capital gains from commercial real estate sales — for individuals with MAGI above $200,000 (single) or $250,000 (married filing jointly). For high-value commercial transactions, this tax almost always applies.

Section 9

Clarity Before Capital: Partnering with MANSARD

Most commercial real estate brokers only get involved with capital gains tax considerations after a property is already for sale. At MANSARD, we help owners before that point — when the most critical financial decisions are still being made.

While we do not provide legal or tax advice, we collaborate closely with your CPA and legal team to ensure your real estate strategy aligns with your broader financial goals. We help you think through:

What your property is realistically worth in today's Greater Boston or NH market
How institutional and private buyers will evaluate and finance your asset
How transaction timing and deal structure will impact your net outcome
Whether selling now makes strategic sense — or if holding, refinancing, or a 1031 exchange is a better path

Capital gains tax is a critical line item, but the bigger question is how a sale fits into your overall wealth strategy.

Schedule a Pre-Sale Strategy Call

A short, confidential conversation to understand your property's value, your tax exposure, and what your best move actually is — before you commit to anything.

Schedule a Pre-Sale Strategy Call Call (617) 674-2043

Confidential. No obligation. Just insight.

Disclaimer: This content is provided for informational purposes only and does not constitute legal, tax, or financial advice. Tax laws are subject to change. Please consult a qualified CPA or tax advisor regarding your specific situation before making any decisions related to the sale of commercial real estate.
MANSARD Commercial Properties · 18 Spring Grove Road, Andover, MA 01810 · (617) 674-2043 · masscommercialproperties.com
Jeremy Cyrier, CCIM, CRE — Licensed in Massachusetts and New Hampshire.