Did you know that 80% of the worlds wealthiest people gained a big bulk of their wealth through commercial real estate investments? No matter if the investment is in a small apartment or sizeable commercial building, not only is commercial real estate a smart investment, it can also give you some significant tax advantages.
Read below to discover typical tax savings that you can apply in 2019.
Tax Advantages of Commercial Real Estate
1. Non-mortgage-related expenses
Any expenses related to owning commercial property, such as maintenance, upgrades or renovations are potential deductions. Even though these may be considered out-of-pocket expenses, they improve the value of the building. Other potential deductions include condo fees and association fees.
2. Interest expense
Interest payments are also deductible, which means any interest you pay on your commercial property over the course of the year can be deducted from the tax you’ll owe. For example, if $4,000 of your $10,000 of your mortgage payment is interest, you will accrue $48,000 that can be deducted from your taxes over the course of the year.
3. Capital gains
One potential benefit owning a commercial property can bring you are lower capital gains tax rates when compared to more traditional retirement investments such as an IRA. For example, when you access IRA funds, you will be billed on those funds depending on your personal tax rate. On the flip side, when you sell a commercial property the capital tax rate associated with it are typically lower than the personal rate from the IRA. (Roth IRA’s are an exception).
4. Depreciation expense
Any time you own a commercial property, the structure begins to depreciate which can offset your tax liability.
5. Post-sales tax savings
Lastly are the post-sales tax savings. If you leave a commercial property to beneficiaries, and they sell, they will only pay tax on the value of the property since the time of your death.
Beyond taxes, the purchase of a commercial building serves as a de facto succession plan. Since many businesses do not have solid succession plans in place, the investment in commercial property can mean an individual has a guaranteed asset at the end of its life, one that can be passed on for generational wealth.
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