Tax Benefits for CRE Investors
Investing in commercial real estate is among the best decisions that you can make. It becomes possible to meet personal and business financial goals for the long-term benefits and sustainability of such investments. You should also note that for CRE investors, there are several tax benefits that you can enjoy once you take that bold investment step. Highlighted below are the tax benefits to expect.
Lower Tax Rate on Capital Gains
If, as an investor, you decide to make investments through your individual retirement account, and the funds grow until retirement, there will be taxation of the money when pulled out, depending on the account’s owner’s tax bracket. However, for CRE investors who decide to make a profitable investment with their money, there will be taxation on the capital gains and at a lower rate than ordinary income in the end.
Use of Commercial Mortgage Interest as a Tax Deduction
While both the CRE investors and homeowners can both deduct the interest expenses on their property’s mortgage, these deductions, in some cases, can be larger than actual profits from the investment. An investor can use the higher deductions to offset tax bills each year, proving beneficial.
Federal Tax Credits
When you consider investing in commercial real estate, there are also higher chances of enjoying tax credits from the governments and regulators. This is the reduction of your overall tax liability when the regulators subtract a certain amount of money from your income taxes as an investor in the industry. The tax credits, however, vary with the programs that administer them.
Tax Benefits for Capital Gains in Opportunity Zones
When an investor decides to place your money on a qualified opportunity fund, and it gets deployed into opportunity zones and used in various projects for more than five years, you will get a reduced tax rate on the capital gains. The reduction in your capital gains continues as long as your money remains in the opportunity zones.
It is crucial to understand that the physical condition of commercial real estate assets degrades over time. For this reason, the government and regulators allow the CRE investors to expense a specific portion of the property’s value in the depreciation process each year. With this expense, the investors get a reduction in their overall tax liability. This serves as a cushion for struggling commercial real estate investments.
Are you interested in learning more about tax benefits for CRE investors? Get in touch with DrawBridge Capital today.