Commercial real estate (CRE) is a major factor in today’s economy. CRE investors can build significant wealth and secure important tax benefits. But successful CRE investing takes skill and managing the tax implications and complications requires the assistance of accounting professionals.
What is Commercial Real Estate?
Commercial real estate is an income-producing property that is used only for business purposes, not for individual residential purposes. Profits can be generated from capital gains or from leasing income.
Commercial real estate consists of office buildings, retail spaces, industrial buildings, multifamily, hotels. Also special purpose properties like amusement parks, churches, bowling alleys, and self-storage facilities.
With this wide range of property types and their varied uses, it is no wonder that tax implications are complex.
Why Invest in Commercial Real Estate?
First, CRE investing has proven successful for many years and for many investors. It can provide high-income potential, and there continue to be many investment opportunities. Commercial properties offer the benefits of outside help to maintain and improve the properties. And there are significant tax benefits.
What Are the Tax Benefits of Commercial Real Estate Investing?
The tax benefits include:
Depreciation expenses. Every building wears down over time and consequently, building owners can deduct a certain amount of depreciation expenses from the property income each year.
Interest expense. Any payments against a commercial mortgage can be deducted from the investor’s tax filings.
Non-mortgage tax deductions. Investors can deduct many property expenses. Such as maintenance costs, repair costs, some property management costs, and other operating costs from their taxes.
Deferral of capital gains can be accomplished through a 1031 exchange as well in Opportunity Zones. And there are targeted tax credits for low-income properties.
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