It’s tax season again. Although payments are expected to be delayed again this year due to the pandemic, now is a good time to make sure that you are making the most of your investing efforts. Commercial real estate comes with very unique tax rules and offers variable options. While investing in areas like the Jacksonville metro have benefits, taxes are still a reality. Don’t blindly follow that tax bill and pay it without reviewing your options for cutting down on costs. While it takes some work on your end, the savings are worth it. Here are a few commercial real estate tax saving tips to take advantage of this tax season:
Appeal Assessed Value
Assessed value is determined by the local tax appraiser, and determines how much you pay each year. However most tax appraisers don’t inspect properties every single year. That means you might be paying more than you need to. It’s very common to appeal the assessed value in court and get it lowered. You can choose to appeal yourself, but you might benefit from a seasoned tax attorney who can guide you through the process.
Check Installment Rates
Are you paying taxes in installments? While many towns in the United States allow this, it could be costing you extra. In some cases, paying in installment plans means you’re paying higher rates than paying in one lump sum. Some cities even offer discounts for paying commercial taxes all at once.
Are You a Dealer or Investor?
Did you sell a property in the last year? Determining the relationship to the property is key to lowering your overall tax bill. You will need to declare if you were an investor, or dealer on your tax form when filing. Commercial brokers, like Landmark, is not the same as a dealer. Dealers buy and sell commercial property as a business, while an investor generates income from property. Developers who improve a property typically fall into the dealer category. Investors are typically those who charge rent, like the owner of an apartment complex or retail building.
The tax differences between dealers and investors are dramatic. If you are a dealer, when you sell the property it is taxed as ordinary income. If you take a loss on the property, that loss can offset your income. An investor, on the other hand, is taxed as a captain gain or loss upon selling the property. If you sell at a loss as an investor it can only offset capital gains and up to $3,000 of income.
Taking Advantage of Depreciation
Itemizing depreciation of your property can help lower how much you have to pay. The how, when and execution make a big difference. If a property is new construction, for example, cost-segregation assigns each component of work to the most tax-favorable category. Renovations fall into this as well. Structural additions have a 39 year tax life, but items considered personal property only have a 5-7 year tax life. So if you’ve recently undergone renovations, it could lead to long-term tax savings.
However bonus depreciation work against you if you have operating losses. In that case, it might be more of a benefit to skip the bonus depreciation and opt for other credits, like research and development credits, or alternative minimum tax credits.
Other Commercial Real Estate Tax Saving Tips
Keep in mind, the little things add up. Charitable land contributions can result in huge tax savings. Some safer, although lesser tax deductions include environmentally friendly write-offs. You might be able to lower your tax bill if you use energy-efficient climate control systems in the building. Using solar or wind power may reap savings, as will making energy-efficient improvements to the building. Even that new hot water heater is an improvement that you can use to lower your tax bill, provided you meet certain requirements.
When seeking opportunities to lower your tax bill, it’s always best to use an expert. Find a tax attorney who can guide you through these options and let you know what you are legally entitled to. Their costs will typically be well-worth your investment (and may be another tax write off for next year). Contact Landmark Commercial Realty Group if you’re ready to sell your property and let our experts help you through the process every step of the way!
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