Whether you buy a large corporate building or regular small shop, there are always several tax benefits of investing in a commercial property. In this case, your tax advisor would be able to tell you how an investment would work out for your business. However, many consider this investment a scope to run a business and a tax-benefit asset.
Keep reading to find out the various commercial real estate tax benefits in the points given below.
One must know that the interest we pay on the mortgage for buying a commercial property is tax-deductible. Also, the interest payments you make throughout the year as part of your mortgage can be deducted from the company’s tax. For instance, if $4000 of the monthly $9000 mortgage payment is the interest, you will add $48000 of the tax-deductible interest throughout the year. It is sufficient to offset the taxes that you would owe on $100,000 of profit.
Post-sales tax savings
If someone leaves the property to beneficiaries, who decide to sell after some time, they will only pay tax on the property’s increased value from the time of the person’s death. In other words, if a person buys a property for $2 million, it appreciates to $6 million by the time that person dies. Hence, if the beneficiaries sell the property at a time when it is worth $7 million, they would pay tax only on $1 million.
We all know that a building begins to depreciate after someone buys it. This depreciation builds up over time, which can offset a business’s tax liability. For instance, the IRS tolerates depreciation of a commercial building over 39 years. Therefore, if you buy a commercial real estate for $2 million, the yearly $72,000 depreciation will offset the buyer’s tax on $200,000 in profit.
Many business owners invest in commercial real estate to make an asset that will come useful in the post-retirement period. The lower capital gains tax rate is one of the great advantages of investing in a commercial estate compared to other retirement investments, such as IRA. It needs to be understood that accessing the maximum of the IRA funds means the person will be billed at their personal tax rate on that money. Furthermore, the sale of commercial property also comes with tax implications, but the capital gains tax related to a commercial building sale is going to be lower than the personal tax rate connected with the IRA.
Besides the tax part, investing in a commercial building often serves as a de facto succession plan. Mainly because many businesses do not have sound succession plans in place, so purchasing commercial property can act as a guaranteed asset in the end. It is beneficial even if there is no one to continue running the business.
For more information regarding tax benefits on commercial real estate investment, contact Wealth BCI today.