There are many tax benefits for investors and owners in commercial real estate. Understanding all of them, however, can be a monumental task. In this post, we’ll cover the top 10 most commonly used tax benefits in the industry, and how to take advantage of them.

Top 10 Tax Benefits for Commercial Real Estate:

  1. Tax Deductible
  2. Depreciation
  3. Expenses
  4. Lower Capital Gains
  5. Beneficiaries
  6. Business Income
  7. Section 1031
  8. Opportunity Zones
  9. Federal Tax Credits
  10. Losses

Join PRC as we expand on each of these tax benefit opportunities for commercial real estate investors and owners. PRC has over 18 years of expert advisory in commercial real estate financing.

Commercial Mortgage Interest Is Tax Deductible Pioneer Realty Capital

1. Commercial Mortgage Interest is Tax Deductible

Just like home owners, commercial real estate owners can deduct their commercial mortgage interest from their taxes. In some cases, this deduction is high enough to offset the taxes owed on profits generated by a property. This is especially true in the case of mortgages with higher interest rates.

To take advantage of this tax benefit, simply claim your accumulated mortgage interest payments at tax time. If, for example, you’ve paid $2,500 a month in interest all year long, you can claim a $30,000 tax deduction.

2. Depreciation is a Tax Benefit

Like all structures, commercial real estate properties go through wear and tear over time. Because of this, the IRS allows investors and owners to claim depreciation as a tax deduction over 39 years for commercial properties. Like mortgage interest, claiming depreciation can offset taxes owed on profits.

There are a few ways to leverage depreciation as a tax benefit. Besides the annual IRS permission, investors can hire an engineering firm to do a cost depreciation study for shorter periods of time. This allows for higher deductions in the short-term. There are also bonus depreciation deductions, which allow some investors to benefit even faster. Occasionally, investors can even take 100% of property value as a deduction.

Non-Mortgage Expenses Tax Advantages For Commercial Real Estate Losses Pioneer Realty Capital

3. Tax Deductible Non-Mortgage Expenses

Maintaining a commercial property takes a lot of work, and work costs money. A number of expenses associated with this upkeep are deductible. These expenses can include:

  • repairs
  • maintenance
  • management expenses
  • renovations
  • upgrades
  • condo fees

Keep in mind, not all of these expenses are eligible for everyone. In the case of condo fees, for example, an investor must live on the property or use it for work. Management expenses are also limited to a select few. Tax benefits from renovations are only gained as the improvements depreciate.

With the right advisement, investors can also deduct operational expenses such as travel to and from a property, hotel expenses, and part of food and beverage costs. Real estate seminars, conferences, conventions, and other educational events are also all potential deductions. Reach out today to learn more. Call 682-518-9416 to start the conversation.

Lower Capital Gains Tax Advantages For Commercial Real Estate Losses Pioneer Realty Capital

4. Lower Capital Gains Tax Rate

For those planning for retirement, commercial real estate investment has some tax benefits over a traditional IRA. One of these benefits in particular is the lower capital gains tax rate. IRA gains are taxed at a personal rate when withdrawn. By contrast, the capital gains from the sale of a commercial property are usually taxed at a lower rate.

To take advantage of this tax benefit, invest in commercial real estate early to maximize gains at the time of retirement. This is also a great approach for business owners looking for security in assets in the case of business closure.

5. Minimize Tax for Beneficiaries

If the plan for a commercial property is to pass it on to beneficiaries, investors can rest easy knowing that they won’t be burdening the recipients with a large tax bill. Heirs of a commercial property who decide to sell only pay tax on the increased value from the time of inheritance.

To maximize this inheritance, invest early and wisely, and be sure to create a will.

Qualified Business Income Tax Advantages For Commercial Real Estate Losses Pioneer Realty Capital

6. Qualified Business Income Tax Deduction

One of the most exciting things for commercial real estate investors about the Tax Cuts and Jobs Act is Sec 199A. Sec 199A covers the