How Owning Commercial Real Estate Can Reduce Your Tax Bill

It’s April 15th..aka Tax Day and if you’re a business owner feeling the sting of writing that check to the IRS, you’re not alone.

What many don’t realize? Owning your commercial building could be one of the most powerful tax strategies out there.

Here’s why:

1. Depreciation

Even though your building may appreciate in value over time, the IRS allows you to depreciate it as an expense. This means you can write off a portion of the building’s value each year, reducing your taxable income without spending actual cash. This typically wipes out all rental income for property owners. Here’s an example. Let’s say you buy a $1,000,000 commercial building and you only take the lowest level of straight-line depreciation at 39 years. You receive $25,641 in depreciation expense (a paper write-off) every year. If you take that times your effective tax rate, let’s use 25% for example purposes, then you’re saving $6,410 per year. Pretty cool right?

 2. Mortgage Interest Deductions

Just like with a home mortgage, the interest you pay on your commercial loan is deductible. That’s a big win for owners, especially in the early years when interest makes up the bulk of your payment. You can’t write off your principal payment, but you are building equity over time so not all is lost.

3. Property Tax Write-Offs

Yes, property taxes can be high on commercial property, but they’re also fully deductible as a business expense. So are many other expenses related to your property like property insurance,

4. 1031 Exchanges

Want to sell your building and upgrade? You can defer capital gains taxes by reinvesting the proceeds into another commercial property through a 1031 exchange. That means more capital working for you instead of going to Uncle Sam. This is also a great strategy for when you want to sell your business and the real estate down the road.

5. Cost Segregation and Bonus Depreciation

If you want to supercharge those tax savings, a cost segregation study can help you break down parts of the building (like lighting, flooring, etc.) and depreciate them faster, potentially saving tens of thousands of dollars early on.

THE Bottom Line:

If you’re paying rent and still have a big tax bill at the end of the year….it might be time to explore ownership.

The right property could help you:

• Build long-term wealth

• Lock in predictable occupancy costs

• AND reduce your tax liability

And no, you don’t need to be a tax expert or a millionaire to do it.

Curious if buying your space could make sense this year?
Send me a message. I’m happy to walk you through it. No pressure, just smart planning.