5 Tax Incentives of Owning Commercial Real Estate

Owning commercial real estate can provide a variety of tax benefits that can help to reduce your overall tax burden and increase your profitability. Here are 5 tax incentives of owning commercial real estate that you may be able to take advantage of:

 

1) Depreciation:

Commercial real estate is considered a depreciable asset, which means that it can be written off over a period of time. The Internal Revenue Service (IRS) allows owners to take a depreciation deduction on their tax returns based on the useful life of the property. This can help to offset the cost of owning and maintaining the property.

 

2) Interest Deductions:

If you have a mortgage on your commercial property, you may be able to claim a tax deduction on the interest that you pay. This can help to reduce your overall tax burden and increase your cash flow.

 

3) Capital Gains Tax Exclusion:

If you sell a commercial property that you have owned for more than a year, you may be able to take advantage of the capital gains tax exclusion. This allows you to exclude up to $250,000 of the profit from the sale of the property if you are single or up to $500,000 if you are married and filing jointly.

 

4) Section 1031 Exchange:

A Section 1031 exchange allows you to sell a commercial property and reinvest the proceeds into a similar property without incurring a capital gains tax. This can be a useful tool for real estate investors who want to defer taxes on the sale of a property and use the proceeds to acquire a new property.

 

5) Cost Segregation Studies:

A cost segregation study can help you to identify assets within your commercial property that qualify for shorter depreciation periods, such as personal property and land improvements. This can allow you to take larger depreciation deductions in the early years of owning the property, which can help to increase your cash flow.

 

It is important to note that tax laws can change frequently, and the tax incentives available to commercial real estate owners may vary depending on your individual circumstances. It is always a good idea to consult with a tax professional or financial advisor to determine which tax incentives may be available to you.

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