tax-benefits-of-commercial-real-estate-investing

Tax Benefits of Commercial Real Estate Investing

3 strategies to reduce your tax burden while investing in commercial real estate.

Tags: Commercial Real Estate Tax Benefits

Tax Benefits of Commercial Real Estate Investing

3 strategies to reduce your tax burden while investing in commercial real estate.

Commercial real estate is a popular investment strategy not only because of its ability to generate stable cash flow and appreciation benefits, but also because of the unique tax advantages it provides.

However, these benefits are not applied automatically, so it’s up to you as the investor to make sure you’re taking advantage.

In particular, there are three main strategies that are especially valuable for reducing your tax burden while continuing to generate consistent returns.

1. Defer Taxes with 1031 Exchanges

If structured correctly, a 1031 exchange allows you to defer the capital gains taxes you’d typically pay when selling a property, and instead reinvest the proceeds from the sale by purchasing a new property.

1031 exchanges can be challenging because you have a limited amount of time to complete the investment (you must identify a new property within 45 days of relinquishing your first property, and close on that new property within 180 days). There are also limitations around the type of real estate you can purchase, as it must be of “like kind” and have greater or equal value to the original property.

However, when working with an experienced partner who understands the ins and outs of these transactions — like Excelsior Capital — a 1031 exchange can be enormously beneficial. Not only does it allow you to defer taxes, but it also gives you the opportunity to reinvest your earnings into a higher-value or more cash flowing property.

2. Claim Bonus Depreciation Before it Phases Out

You may have heard that bonus depreciation is about to expire, but it’s not too late to take advantage of this tax benefit. Any assets acquired and placed in service before Jan. 1, 2023 is still eligible for 100% bonus depreciation. In 2023, the deduction will lower to 80%, then 60% in 2024, and so on until it phases out in 2027.

With bonus depreciation, businesses can immediately expense eligible assets in their first year of service, rather than claiming depreciation across a longer time period. This can offset income in the first year after acquiring a new property.

To do this, businesses may implement a cost segregation study, identifying all property-related costs that can be depreciated faster. This could apply to an acquired property, new construction, or even remodels or build-outs.

Even if bonus depreciation is not renewed before the end of 2023, Congress may still introduce other tax incentives to offset the phase out process. Make sure to keep an eye out for any IRS pronouncements that might affect your 2023 investments and the depreciation options available to you.

3. Leverage Life Insurance as a Source of Capital

Many real estate investors reach a point where they don’t have enough cash reserves to participate in all the deals that interest them. If you’re looking to accumulate capital in order to grow your investment portfolio, you may benefit from purchasing Cash Value Whole Life Insurance.

This strategy can help you deploy capital more efficiently, and it also provides unique tax advantages in the process. The money you accumulate and distribute within a life insurance policy is tax free, as are any dividends you receive. In essence, you’re using your life insurance policy like a personal, private bank, providing a loan from your insurance policy to finance your next real estate investment.

To learn more about the power of cash value whole life insurance for real estate investors, we encourage you to watch this webinar.

Are Your Investments Tax Efficient?

Not all real estate sponsors make tax efficiency a priority when sourcing and structuring deals. If you want to make sure you’re accessing the full range of tax benefits of commercial real estate investing, make sure you’re working with people who share your goals and have the knowledge and expertise needed to help you achieve them.

At Excelsior Capital, we understand that direct real estate ownership is the best way for our investors to access the full tax benefits. We make that ownership possible with our carefully vetted, inflation-resistant commercial real estate investments.

If you’re an accredited investor looking to optimize your portfolio for tax efficiency, we’d love to connect with you. Simply fill out this form to get in touch.

Previous Articles

the-ultimate-guide-to-commercial-real-estate-investing

The Ultimate Guide to Commercial Real Estate Investing

Learn everything you need to know to assess the benefits of a commercial real estate investment and make the best decisions to get started.

Q1-2023-commercial-real-estate-investment-update

Q1 2023 Commercial Real Estate Investment Update

The commercial real estate industry has seen significant shifts and challenges over the past year, and the first quarter of 2023 was no exception.

Understanding the Waterfall Structure in Real Estate Private Equity Investments

Understanding the Waterfall Structure in Real Estate Private Equity Investments

Learn about this distribution framework used in real estate private equity investments. Understand the components of a waterfall structure…

how-much-money-do-I-need-to-start-investing-in-commercial-real-estate

How Much Money Do I Need to Start Investing in Commercial Real Estate?

We frequently have conversations where people tell us, “I want to start investing in commercial real estate, but I’m not sure if I have the capital.”

benefits-of-owning-commercial-property-over-residential

Benefits of Owning Commercial Property over Residential

While both types of real estate investments have their benefits, investing in CRE can be more advantageous for several reasons.

The Revolution That Wasn’t

How has technology impacted modern finance and created an asymmetrical relationship between Wall Street and individual investors? In this episode, we speak with Spencer Jakab, the author of The Revolution That Wasn’t and editor of the Wall Street Journal’s Heard on the Street column.

Tax Savings Secrets: How Cost Segregation Analysis Can Save You Money

How can cost segregation analysis help real estate investors maximize their returns? In this episode, John Hanning explores the potential benefits of cost recovery studies and depreciation.

What is a Family Owner’s Manual and Do I Need One?

It’s time to make sure you and your family are set up to continue success for generations to come. Today, Josh Kanter shares his journey transitioning from practice as a transactional attorney to reorganizing his family’s activities under a single-family office.

Key Characteristics of High-Performing Family Offices

Are family offices becoming more popular? In this episode, Robert Daugherty dives into the importance of having a functional family office, and the role of the Chief Learning Officer in it.

Excelsior Capital

A real estate private equity firm that owns and operates high quality multi-tenant office assets in emerging secondary markets.

Interested in learning more about Excelsior's investment opportunities?

Excelsior Capital

104 Woodmont Blvd, Suite 120
Nashville, TN 37205

investors@excelsiorgp.com

w

Livechat

Disclaimer: Under no circumstances should any information presented on this website be construed as an offer to sell, or solicitation of an offer to purchase any securities or other investments. This website does not contain the information that an investor should consider or evaluate to make a potential investment. Other materials related to investments in entities managed by Excelsior Capital are not available to the general public.