If you know what to look for, there can be some real bargains associated with investing in commercial real estate. As long as you are the direct owner of the property being purchased, mortgage interest can be deducted and a number of different expenses can also be deducted, provided that they’re expenses associated with leasing.
Property Owners can deduct depreciation value when tax time. And this value estimates the amount of depreciation on the property from one year to the next. The purpose of deductions is to allow owners to recover at least some of the expense involved with property maintenance. The total cost of the property provides the foundation for appreciation calculation, rather than the total amount of equity and the owner might have in the property. This approach allows for the mortgage loan being amortized over the total holding.
When you become involved with equity investing, you’ll be able to invest in shares of residential property or private commercial property. In exchange, you’ll get a percentage of the rental income generated by the commercial real estate property in question. When investing in real estate equity, you will effectively become the owner of shares in a related limited liability company or partnership. This is highly advantageous to you, because it creates a pass-through entity that can be used for all future tax purposes.
Loan interest Deductions
Mortgage loan interest is another expense that can be deducted and it’s another factor that is associated with commercial real estate investments. The full amount of any loan interest that would have to be paid annually will be subtracted from rental income you received for the year, in order to calculate a property owner’s taxable income. When this amount is combined with the depreciation deduction, the mortgage loan interest write-off can actually minimize any tax that gets applied to investors’ cash distributions. In effect, it increases the overall return investors receive from a property, while concurrently reducing their tax burden.
If you’re thinking of investing in commercial real estate, we may be able to assist with the financing you’ll need. Contact us at Porter Capital Group to find out what kinds of lending programs we can offer to help you accomplish your objectives with regard to making a real estate investment.