A Holistic Approach to Investing
Every type of investment, from the stock market to real estate, must be looked at holistically. The initial purchase price, cost of ownership, and tax liabilities are all crucial facts to consider when assessing a potential return.
Taxes, in particular, come into play in various ways: at the time of purchase (sales tax), throughout ownership (property taxes), and at the time of sale (capital gains). Like owning your own home, purchasing commercial real estate has several tax benefits you may not be familiar with.
Tax Benefits of Commercial Real Estate
Below are a handful of the tax benefits that come with owning commercial real estate.
- Mortgage Interest Deductions: As with a residential property, you can deduct the interest payments associated with your mortgage.
- Post-Sales Tax Savings: This tax strategy allows beneficiaries to only pay taxes on the amount the property has appreciated from the time of the owner’s death to the time of sale.
- Depreciation: Depreciation schedules allow investors to reduce their taxable income through yearly deductions as the building depreciates over time.
- Lower Capital Gains: Compared to other investments such as IRAs, commercial property has a lower capital gains tax rate, thus saving you money.
- Qualified Business Income: Depending on how the investment functions, you may be able to take a QBI deduction against your income to reduce your tax liability.
- 1031 Exchange: While not necessarily a strategy to lower taxes, a 1031 Exchange allows investors to defer taxes, keeping more money in their pocket to continue investing.
- Tax Credits: Programs such as Opportunity Zones, Low-Income Housing Tax Credits, and Historic Tax Credits provide tax breaks for investors who purchase specific types of buildings or in certain areas.
- Other Deductions: Specific maintenance or renovation costs can be considered deductions with investment properties.
Talk With Your Tax Professional
Be sure to talk with your tax professional about the benefits of purchasing and owning commercial real estate. If you have questions about where to start with your investment plan, please contact Steve Longenecker and Northern Colorado Commercial Real Estate at WeBrokerCORealEstate or 720-600-9513.
We give out $250 gift cards for referrals that become our real estate clients.
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