TAX BENEFITS OF INVESTING IN COMMERCIAL REAL ESTATE

by Eric Stewart |

For years, I’ve been saying that one of the best reasons to invest in commercial real estate is its incredible tax benefits. For investors and landlords alike who want their money-making work while they enjoy life with all those extra income checks coming from owning property on behalf of others; there really isn’t anything better than finding new ways how we can maximize our earnings by taking advantage of every aspect possible regarding what type(s) of space will give us sweetest return!

Commercial real estate investors get more than just a good deal from their investments. They can also take advantage of tax breaks that no other type of investing offers!

Let’s take a look at these benefits now!

Interest write-offs

Commercial real estate can be one of the only assets on earth that pays you as it ages and degrades! You may have heard about how commercial properties often generate more income than most people spend on rent, but did you know there’s a good chance this will continue to happen even when interest payments are taken into account? Don’t let your mortgage payment go towards someone else’s profit—write those off instead.

You’ll also come out ahead if they pay legal fees or marketing expenses since these represent costs borne solely by landlords without any benefit from their investment beyond keeping up appearances (and maybe inadvertently creating some).

Depreciation advantage

Commercial buildings begin depreciating the minute you acquire them. The asset may not be “physically” decreasing in value but make no mistake: every day, it gets older and thus less valuable

As properties wear out over time (and thanks to depreciation), owners can deduct certain amounts from their taxes each year before applying any income against what was originally earned; this is called “depreciation expense.”

On an expenses list, depreciation is the process of claiming less for each expense as time goes on. This means that you can walk away with more after taxes since it’s not actually coming out of your pocket! So if you own your building, there is no better time than now to make sure that all possible tax benefits have been taken advantage of before preparing any financial statements!

QBI deduction

If you’re in the real estate business and have been running your company for profit this past year then there might be some good news! The new Tax Cuts And Jobs Act allows businesses to take up an additional 20% tax break by claiming Qualified Business Income (QBI).

This means that as long as they meet certain requirements such as being sole proprietor or owned solely through one member LLC – these entrepreneurs can now deduct their profits from salaries paid out. So commercial real estate investors may now benefit from the benefits of pass-through taxation-which includes being able to take advantage of this very incentive!

Write off against capital gains

The depreciation and interest expense deductions help lower the income tax burden, but they can’t be written off against capital gains. However, there’s an option for real estate investors: 1031 exchanges! This means that when you sell your commercial property – instead of reinvesting in another one through a simple sale agreement with no strings attached-you get cashback (or put it towards something else).

The catch? You have to work alongside this qualified intermediary who will hold onto all profits from each transaction while helping facilitate deals among different parties interested at various levels.

But the beauty about investing through a 1031 exchange is that you get to use your capital gain as an investment opportunity. Since taxes on those profits won’t be incurred, there will always be more money for future purchases!

 

Originally posted on LinkedIn

 

We are ready to assist investors. For questions about Commercial Real Estate Investment and Commercial investment properties, contact your Orange County commercial real estate advisors at SVN Vanguard. 

 



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