Tax Benefits for CRE Investors          



Commercial real estate has more benefits than you may realize. Although there is the obvious advantage of the additional income that this kind of investment provides, there are other benefits that may not be as apparent. Commercial properties often provide a higher rate of return on investment than residential properties. Additionally, CRE investors can expect assistance with their property investment in the form of several kinds of tax breaks. These tax benefits are designed to provide the most appropriate deductions for this kind of investment.

One way that this kind of investment provides benefits is through a mortgage loan interest tax break received by all investors. This deducts the mortgage loan interest that is paid annually on the property from the taxable income of the investors. Additionally, investors can claim tax breaks on depreciation value. Any real estate property is worn down annually simply from being in use. Since it is up to the owner to ensure that these properties stay functional, investors may deduct this depreciation from their taxable income. Both of these tax breaks for CRE investors is calculated by the limited liability company, also known as the LLC, or its limited partnership, also known as an LP. This way, individual investors do not all claim separate numbers for these tax breaks.

There are also other benefits that come with commercial real estate investment that does not come in the form of tax breaks. There is an interesting way in which these kinds of investments are taxed in terms of capital gains. Because equity investing is mostly a proposal for holding properties, long-term capital gains rate is applicable for earnings associated specifically with the sale of the property. However, gains that are short-term are taxed differently, at the regular income tax rate for an individual. This can have a large effect on one’s tax bill.

Additionally, CRE investors do not have to claim any self-employment tax, as they are not playing an active role in the real estate property. The kind of income generated as an investor in commercial real estate is considered passive income and, therefore, is not taxable in the same way as some other real estate developments. Other projects may be subject to both ordinary income tax and self-employment tax. All in all, commercial real estate is a viable option for those that are considering real estate investment but may not have the necessary capital to purchase their own property. It is a practical way to reap the benefits without having to directly purchase the property itself.