Today’s rates for a wide range of commercial property and loan types.
Check Today's Rates →
Federal Tax Implications for Commercial Real Estate in 2022
While changes to capital gains tax are worth reviewing, using a tax professional to handle a wide range of deductions could be your best bet to reduce your tax burden.
- How Could Capital Gains Changes Affect Commercial Real Estate Investors?
- Why Investors Should Work with a Tax Professional
- Helpful Strategies for Reducing Taxes for Commercial Real Estate Investors
- Depreciation
- Repairs and Maintenance
- Employee Wages, Independent Contractor Costs, and Professional Fees
- Transportation
- Related Questions
- Get Financing
Taxes are always going to be on the minds of investors, especially those focused on commercial real estate. As tax laws, rules, and regulations tend to change frequently, investors must stay abreast of changes in 2022 to ensure taxes are handled correctly. Even with these changes, however, commercial real estate investment remains an area that benefits from significant tax benefits.
How Could Capital Gains Changes Affect Commercial Real Estate Investors?
Some commercial real estate investors have been concerned with the timing of dispositions, with many wanting to sell a property before the end of 2021 due to potential concerns with tax law changes in the new year. Projected increases in capital gains taxes were of particular note, or that sales closed during the year could push investors into a higher tax bracket.
Whenever a property is sold, there is always a danger of finding yourself in a higher tax bracket for that year. This is something to consider, particularly for high-value commercial properties, as they could significantly impact capital gains for that tax period.
Aside from these concerns, there don’t appear to be other major surprises for commercial real estate investors in 2022.
Why Investors Should Work with a Tax Professional
One of the first and most important things any commercial real estate investor should do is find a qualified tax professional who knows and understands the field. Working with a professional can help you reduce your levels of stress and use some of the best strategies when it comes to taxes and your property.
Selecting your accountant or tax professional is an important decision. You want to have someone on your side who fully understands what you do and who knows how tax laws work along with changes for 2022 and beyond.
Helpful Strategies for Reducing Taxes for Commercial Real Estate Investors
As a commercial real estate investor, you will find a range of tools and options at your disposal that could help to ease your tax burden.
One option available is a 1031 exchange. This type of transaction is one that requires divesting from one asset to replace it with another, similar property within a certain time frame. These exchanges are popular because they allow you to defer paying capital gains tax and allows investors to stay more liquid. Of course, the IRS is strict about 1031 exchanges, so you need to be sure you are following the rules exactly.
You also need to make sure you are aware of potential deductions you can take with your property.
Depreciation
Depreciation is a key deduction you do not want to miss. While land can’t depreciate, the buildings you buy can and do. Depreciation will effectively reduce the taxable income of a property without reducing its cash flow.
Repairs and Maintenance
Whether you need to renovate a property or just need to repave a parking lot or take care of standard maintenance issues, you can deduct it in the year it happened. Larger changes to the property could qualify as capital improvements, and these would have to be depreciated over the course of several years.
It is a good idea to take all of the various projects that fall into this category and itemize your expenses. It will be easier for you or your tax specialist when it comes time to file.
Employee Wages, Independent Contractor Costs, and Professional Fees
Whether you hire someone to work with you or use independent contractors, the wages you pay them will be tax deductible on Schedule E of the tax return. Keep in mind that if you work with independent contractors and you pay them more than $600 in a single calendar year, you will have to send and file 1099s for them, since you qualify as a professional commercial real estate investor.
If you incur any professional fees, you can deduct those, as well. This would include things like legal fees, property management fees, and accounting fees.
Transportation
You can even deduct transportation costs if you have to travel to and from the commercial properties regularly. You can deduct these travel costs when you have to travel for other business related to the property, which could help to push your taxes down further. However, as with all deductions, you want to be honest. As your tax specialists will tell you, the last thing you want is for your business to be audited.
Of course, these are only a few of many different types of deductions that you may be able to take advantage of. Your work as a commercial real estate investor is a business like any other, so the same sorts of deductions other businesses can take may apply to you as well.
Again, working with a tax professional will help you to understand not just the 1031 exchange but all of these deductions. No one likes to pay taxes, but they are a necessary part of life in the world we live in. Finding ways to ensure your taxes are as low as possible is important, and a big part of that is keeping up with changes to tax laws.
Related Questions
What are the federal tax implications for commercial real estate in 2022?
The projected increases in capital gains taxes are of particular note for commercial real estate investors in 2022. Whenever a property is sold, there is always a danger of finding yourself in a higher tax bracket for that year. This is something to consider, particularly for high-value commercial properties, as they could significantly impact capital gains for that tax period. Aside from these concerns, there don’t appear to be other major surprises for commercial real estate investors in 2022.
It is important to work with a qualified tax professional who knows and understands the field. Working with a professional can help you reduce your levels of stress and use some of the best strategies when it comes to taxes and your property.
What tax credits are available for commercial real estate investors in 2022?
The government has enacted several tax credits for commercial real estate investors in 2022. These include the Infrastructure Investment and Jobs Act, which provides tax credits for investments in infrastructure projects, and the Opportunity Zone program, which provides tax incentives for investments in low-income communities. Additionally, the Tax Cuts and Jobs Act of 2017 provides a 20% deduction for pass-through businesses, which includes many commercial real estate investments.
It is important to note that these tax credits are subject to change, so it is important to consult with a qualified tax professional to ensure that you are taking advantage of all available credits. Additionally, it is important to be aware of any changes to the tax code that may affect your investments.
For more information, please see the following sources:
What are the tax deductions available for commercial real estate investors in 2022?
Commercial real estate investors in 2022 can take advantage of a variety of tax deductions. These include deductions for employee wages, independent contractor costs, professional fees, and transportation costs.
Employee wages and independent contractor costs are tax deductible on Schedule E of the tax return. If you pay an independent contractor more than $600 in a single calendar year, you will need to file 1099s for them. Professional fees such as legal fees, property management fees, and accounting fees are also tax deductible.
Transportation costs related to the commercial property are also tax deductible. This includes travel for other business related to the property.
It is important to be honest when taking deductions, as the last thing you want is for your business to be audited. Working with a tax professional can help you understand the deductions available to you.
How can commercial real estate investors minimize their tax liability in 2022?
Commercial real estate investors can minimize their tax liability in 2022 by utilizing a 1031 exchange. A 1031 exchange is a transaction that requires divesting from one asset to replace it with another, similar property within a certain time frame. This type of exchange allows investors to defer paying capital gains tax and stay more liquid. Additionally, investors should be aware of potential deductions they can take with their property.
For more information, please visit the following sources:
What are the most important tax considerations for commercial real estate investors in 2022?
The most important tax considerations for commercial real estate investors in 2022 are the potential increases in capital gains taxes and the possibility of being pushed into a higher tax bracket due to the sale of a property. It is important for investors to work with a qualified tax professional who understands the field and can help them reduce their levels of stress and use the best strategies when it comes to taxes and their property.