Being an investor in multi-family and mixed-use Investment properties offers many benefits. Owning multiple properties helps diversify your portfolio, brings in a regular cash flow, and helps increase your revenue gains when selling. When it comes to tax time, there are also many benefits to take advantage of as an investor in commercial real estate. With several tax benefits available to you as an investor, you should understand how each tax benefit works from our experts at IPRG. We’ll walk you through the different tax benefits, from depreciation to capital gains, and help you not leave any money on the table with your investment.
IPRG’s Helpful Guide Through the Different Investment Property Tax Benefits:
Depreciation
Like any other property, the investment building you buy will naturally wear down over time. Due to this factor, depreciation is an annual income tax deduction that allows you to recover the cost or other basis over the time you use the property. The decrease is measured, and you have the option to deduct the depreciation value off of your taxes owed each year. Deducting the depreciation can be a huge tax break and save you a great deal for the year, making it a lucrative benefit.
Interest Expense
Owning multi-family buildings or other commercial real estate offers another great tax benefit as interest expense. If you took out a loan on your property, the interest expense allows you to deduct the interest payments you made on that loan over the course of the year. This tax benefit can be helpful if your loan has a high-interest rate or as a way to offset some of the income you make from the cash flow.
Non-Mortgage Related Expenses
Along with deducting the interest paid on your investment properties, you can also benefit by deducting non-mortgage related expenses. For example, maintenance costs, property repairs, and any expense related to the property are non-mortgage related expenses. In addition, operating fees and travel costs to and from the property are also considered expenses you can write off on your taxes. These out-of-pocket expenses can benefit you greatly when it comes time to file, so keep track and hold on to those receipts.
Capital Gains
Capital gains are the profits you make when you sell your investment property and are taxed like any profit. As a commercial investor, the capital gains tax is usually significantly lower than other investors, so you benefit by not having to pay as much in capital gains taxes. You could also avoid paying capital gains taxes altogether through a 1031 exchange where you sell your property and buy a like-minded property within the allotted time frame.
Stepped Up Basis
Are you planning on leaving your investment properties to family members or other beneficiaries? Step-up in basis, or stepped-up basis, happens when the price of an inherited asset on the date of the decedent’s death is above its original purchase price. The tax code allows for raising the cost basis to the higher price, minimizing the capital gains taxes owed if the asset is sold later.
Final Thoughts
Owning commercial investment properties provides multiple benefits to increase your profits. If you need help in maximizing the ROI on your investment, contact IPRG. Our real estate investment brokers have extensive knowledge of the real estate market. We’ll guide you on cashing in on lucrative tax benefits, provide other advice on your investment properties, and get you the best return when selling your property.