Whether you purchase a large factory, a medium-sized warehouse, or a small retail building, buying commercial real estate often provides a variety of tax breaks for the owner. Your tax or financial advisor can tell you exactly how such an investment could be beneficial for your business. But here are some of the most common tax advantages of buying commercial real estate.
1. Depreciation Expense
A commercial building often begins depreciating as soon as you purchase it. Fortunately, the IRS allows you to depreciate a commercial building over 39 years, providing substantial tax benefits.
2. Interest Expense
When you take out a mortgage on your commercial property, the interest you pay on the loan is tax-deductible. For example, if about $4,000 of your monthly $10,000 mortgage payment is interest, you will accrue $48,000 of tax-deductible interest over the court of the year. This will likely be enough to offset your annual property tax payments.
3. Post-Sales Tax Savings
If you leave the property to one or more beneficiaries and they decide to sell it, they will only pay taxes on the increase in value of the property from the time of your passing until the date of the sale. For example, if you buy a commercial property for $1 million. If it is worth $4 million at the time of your passing and your beneficiaries sell, they will only pay taxes on $1 million.
4. Capital Gains
Some business owners purchase commercial property as a retirement saving strategy. One of the advantages of buying commercial real estate with this approach is the lower capital gains tax rate compared to other retirement investments. While the sale of a commercial property has tax implications, the rate you are charged is usually lower than the personal tax rate that would be associated with an IRA.
5. Non-Mortgage-Related Expenses
The maintenance, renovations, upgrades, and ongoing expenses associated with owning commercial property are considered potential tax deductions. While these are out-of-pocket expenditures, many of them improve the building’s value.
6. Opportunity Zones and Tax Credits
The Opportunity Zones program was created in 2017 to stimulate investment in some low-income communities throughout the country. This allows commercial property investors to defer eligible capital gains if they invest in a Qualified Opportunity Zone. In addition, the federal government provides other tax credits to businesses that invest in low-income housing, historic building restoration, and other beneficial programs.
Caldwell Commercial Can Help You With Buying Commercial Real Estate
If you’re thinking of buying commercial property in the Charleston, SC, area, you need a real estate partner you can trust. Caldwell Commercial is an established leader in the South Carolina real estate market.
Our team of knowledgeable commercial real estate specialists and property managers has over 80 years of combined experience helping clients achieve their goals. Contact us today to learn more about how we can help you achieve the most tax advantages with the right commercial property investment.