With the tax deadline approaching in April, many investors will reflect on the strategies they employ and look for deductions that will lessen their tax liability.
One surefire investment with tax benefits is commercial real estate (CRE). Here we’re outlining some significant money-saving incentives of investing in commercial real estate – contrary to stocks and bonds.
Interest Expense Deductions
The first tax advantage of commercial real estate investing is the ability to deduct the interest paid on a commercial mortgage.
For example, if an investor pays $15,000 each month in commercial mortgage payments, of which $3,500 is paid for interest, they would be able to get a deduction off their federal income taxes of around $42,000 for the year.
Depreciation Deductions
Given the fact that commercial real estate has some level of depreciation over time, investors can find tax benefits from this aspect as well.
Currently, the IRS allows owners of commercial properties to depreciate the asset over a 39-year period. So, if the investor purchased a commercial property valued at $3.2 million, they’d be able to take a depreciation deduction of about $82,000 a year for those 39 years.
Non-Mortgage Deductions
Additionally, commercial real estate investors can enjoy tax deductions from the costs they incur related to:
- property repairs
- some property management expenses
- maintenance costs
- costs of traveling to and from the property
- and other operating expenses, such as attending related conferences, seminars or educational events for commercial real estate investing
Reduced Impact on Beneficiaries
Lastly, commercial real estate investors not only enjoy tax benefits themselves but also their beneficiaries can too.
When the investor’s heirs inherit the property, they will only owe taxes on the amount that the property has appreciated, not the full value. This can mean the difference between your beneficiaries being able to afford the property or needing to sell it after your passing.
For example, if an investor purchased a commercial property at $2 million, and at the time of their passing it had appreciated to $2.6 million, the beneficiaries will only pay taxes on the $600,000 appreciation. As such, this can save the heirs hundreds of thousands of dollars, and maybe even millions.
About AVANA CUSO
Established in 1998 and headquartered in Simi Valley, CA, AVANA CUSO is one of the most seasoned credit union service organizations (CUSO) focused on commercial real estate lending. For decades, we have partnered with credit unions across the country to offer competitive and collaborative CRE loans. We also uniquely support and guide our partners through the entire lifecycle of our loans. AVANA CUSO is a proud member of the AVANA Family of Companies.
Contact us today to learn more about becoming an AVANA CUSO partner.