Can You Deduct Commercial Property Taxes? Here’s the Answer, Plus the Other Tax Advantages of Owning Commercial Real Estate.
Strategically and wisely investing in real estate can be a surefire way to build wealth. But working to build that wealth doesn’t stop with that close of a sale. Knowing the tax benefits of owning commercial real estate (CRE) – and reducing those annual taxes – is a must. Commercial real estate investments offer tax advantages ranging from deductions to beneficiary perks to deferring capital gains tax.
With so many opportunities for significant reductions, it’s a non-negotiable to know which of those levers to pull and when.
Can you Deduct Commercial Property Taxes?
Yes, you can deduct commercial property taxes. As a commercial real estate owner, you can benefit from the following tax deductions on your commercial properties:
Commercial Mortgage Interest Expense Deductions
Real estate investors can deduct any interest they pay on a commercial real estate mortgage off of their federal income taxes.
Non-Mortgage Deductions
Those with a commercial real estate investment can deduct related services and costs, such as property repairs, maintenance costs, property management expenses, the cost of travel to the property, and any real estate investment education courses or seminars.
Depreciation Deductions
Commercial real estate investors can deduct a certain amount off of their income taxes each year due to depreciation (wear and tear over time). According to the IRS, you can deduct depreciation value on commercial properties for 39 years.
Qualified Business Income (QBI) Deductions
A QBI deduction permits investors to deduct 20% of qualifying passive income. This deduction may not apply to every business and can be complex to determine.
Loss Deductions
In some cases, commercial real estate investors can take any incurred losses as tax deductions. For instance, investors making less than or equal to $100,000 per year as well as property managers or brokers can deduct losses.
Commercial Real Estate Tax Breaks
Not only does investing in commercial real estate offer tax deductions, but it also comes with several additional commercial real estate tax breaks:
Reduced Beneficiary Tax Burden
A commercial real estate investor’s heir can also experience the tax benefits of the properties. If a property appreciates before the investor passes away, the heir only has to pay taxes on the appreciated difference.
1031 Exchanges Help Defer Capital Gains
IRS 1031 exchanges enable investors to defer capital gains tax payments when selling the property if they utilize the funds to purchase a similar property.
Opportunity Zones Help Defer Capital Gains
The Opportunity Zones program enables investors to defer capital gains tax payment for the short term (until December 31, 2026) as long as they invest in an Opportunity Fund.
Tax Credit Programs
The federal government offers several additional tax credit programs:
While this is a brief overview of the tax advantages of investing in commercial real estate, it’s important to consult with an experienced tax professional to determine if you and your property qualify for these tax benefits.
About Extensia Financial
Established in 1998 and headquartered in Simi Valley, CA, Extensia Financial offers competitive and collaborative commercial loans. We partner with credit unions to connect them to investors across the United States. Additionally, we uniquely support and guide our partners through the entire full lifecycle of renewable energy loans. Extensia Financial is a proud member of the AVANA Family of Companies.