Although there are many reasons why Commercial Real Estate is an excellent investment vehicle that stands head-and-shoulders above many others (due to the fundamentally limited nature of the commodity); the tax benefits that available is one of the best. You have access to everything from mortgage interest deductions, to accelerated depreciation. Here, we provide a short introduction to some of the other tax benefits for CRE investors.
Tax Deductions Are Available as an Interest Expense
This particular benefit behooves an example: as a commercial real estate buyer you probably need to borrow loans at some point. Consider a mortgage on a large office building of $10,000 per month at 20% interest. The ability to deduct interest tied to your commercial mortgage from your federal tax returns means you can deduct nearly $24,000 at the end of that year (and every year in which you pay the mortgage).
QBI – Qualified Business Income Deductions for CRE Investors
The particulars of this is involved; but the gist of the QBI is as follows: any passive income source tied to your real estate portfolio can enjoy a 20% deduction. Some of the limitations to this are tied into the amount of W-2 wages for which you were responsible during that year.
This is a big one, and characterizes the federal government’s commitment to renters in traditionally low-income housing zones.There are quite a few similar options, such as the HTC, LIHTC and the NMTC programs. It’s worthwhile to look into these in-depth, because there are huge savings to be had via tax credits if you’re a CRE investor willing to buy, rent or lease in historically low-income areas.
Before you make any of the above decisions, it is wisest to schedule a consultation with a tax professional. The ins-and-outs of real estate are involved, and whatever you spend on consultation will reap dividends when you start making your actual investments.