12 Jan Commercial Real Estate – Ownership
There are several ways to get involved in commercial real estate ownership, today I have outlined a few for you to consider. If you’re looking to take your next steps into CRE, please reach out to myself, Kees@iconicdet.com or any of our agents here at ICONIC to learn more and find your first or next investment! Owning commercial real estate can offer several tax benefits for both the property owner as well as the Limited Partner (LP) investor, or a stockholder in a real estate investment trust (REIT).
- Depreciation: As a property owner or LP investor, you can take advantage of depreciation deductions, which can reduce your taxable income. Depreciation is a tax benefit that allows you to write off the cost of the property over time, based on IRS guidelines.
- Interest Deduction: You can deduct the mortgage interest paid on the commercial property from your taxable income. This can be a significant tax savings, particularly if the mortgage rate is high.
- Operating Expenses: As a property owner or LP investor, you can deduct various operating expenses such as property management fees, utilities, repairs, and maintenance from your taxable income.
- Capital Gains: When you sell a commercial property, you may be eligible to pay capital gains tax on the profit from the sale. The capital gains rate is typically lower than the ordinary income tax rate, providing a tax savings.
- 1031 Exchange: If the property is a rental property, the owner can defer taxes on the gain of the sale through a 1031 exchange which allows them to roll the proceeds into a new investment property.
- REITs: For stockholders in a Real Estate Investment Trust (REIT), they can benefit from the dividends they receive, which may be taxed at a lower rate than ordinary income. They may also benefit from capital appreciation on the REIT’s share price.
- Tax credits: There are also several government-sponsored programs that offer tax credits for commercial real estate projects, such as the Federal Historic Tax Credit, and the Renewable Energy Tax Credit.
It’s important to note that, the specifics of the tax benefits can vary depending on the type of property and the nature of the investment, as well as the local, state and federal tax laws. Consulting with a tax professional or financial advisor before making a commercial real estate investment is recommended, to fully understand the tax implications and how to best utilize the tax benefits.
Thank you for reading.
Kees Janeway – Managing Partner, ICONIC Real Estate