Keep in mind, when purchasing commercial real estate there is much more than income and possible appreciation. The tax benefits for some far outpace the income and possible future gain.
Commercial Real Estate Tax Write-Offs
The higher tax bracket investors who receive the most benefit not only receive interest write-offs with the basic expenses to operate the property but get substantial depreciation benefits reducing the tax on the steady income. If a possible sale occurs the investor will utilize the 1031 exchange rule to delay the possible capital gain tax and the recapture of past depreciation.
The Fastest Way To Commercial Real Estate Tax Write-Offs
The higher your tax bracket the more benefit you receive from the depreciation allowance. The component part strategy is the fastest way to reduce commercial real estate tax for it takes the various parts of the building and breaks them down to shorter timelines to depreciate the overall asset.
The next fastest is purchasing a gas station which allows 15-year depreciation against the income. Residential follows next with 27.5 years and commercial 39 years. This allows the taxpayer to determine how fast they want to take their reduced taxes out in the future most likely thinking they are making more money when they are younger than when they reach an older stage in their life and their tax bracket will shrink gaining less benefit. Some just want the same depreciation over an extended period of time and not rush it.
Most other investments cannot match all the benefits that are offered with commercial real estate investments and also not subject to the extreme ups and downs and risk of stocks, bonds, commodities, gold, and silver.
Of course, you don’t necessarily get the extreme upside potential unless you purchase in a very hot sector of the USA like Manhattan, San Fran, Miami, Seattle or Austin. But, of course, you pay a very healthy price for these areas so you better hope the trend stays steady and up in order to justify the extra cost.
Support Your Future Outcome
Buying with the idea of increased rents, growth in the area, a building that is not so specialized to accommodate future tenants of a general nature, tenants that have good credit and longer-term leases and of course lower price per square foot for both rent and building will help support your future outcome.
Diversification helps in the sectors you chose as an example retail brick and mortar are weakening against the Internet while warehousing is increasing with distribution buildings necessary for the Internet sales occurring. Assisted living gaining with an aging population while apartments might have a small crack forming being overbuilt and too much competition in some areas. Office less demand while storage is hot for apartment dwellers needing more space.
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