It’s nearly time to close the books on your fiscal year. Have you taken all of your tax break considerations into account? While it may be too late to qualify for certain tax credits (such as the LIHTC, HTC and similar programs), there are still a few ways you can position yourself appropriately for tax season.
Let’s go over a few tax break considerations and see if there are any last-minute adjustments you can make.
As you likely already know, commercial buildings depreciate over time and you can write off that depreciation. (Though the time period varies depending on the type of building.) But do you know about bonus depreciation? According to new regulations in the Tax Cuts and Jobs Act of 2017, “some investors can take up to 100% of the property’s value as a depreciation deduction in their first year of ownership, at least until 2025.” (Source: Commercial Real Estate Loans) This is also known as a first-year depreciation deduction.
Also known as Qualified Business Income, these deductions are often missed due to complexity. QBI deductions can include passive income sources and these deductions can permit individuals to deduct 20% of qualifying income. Sales from commercial properties aren’t eligible and determining deduction amounts can be tricky, so consult with a tax professional for this one. (This is also why it’s wise to invest in automated CRE software to have all the numbers ready.)
Deferred Capital Gains
Certain exchanges allow CRE pros to defer payment of capital gains taxes (though it requires the exchange of a similar property within a certain period of time). You can’t do it indefinitely, but it is a way to balance your budget and expenses if you’re anticipating high tax payments for 2021.
Thanks to the 2020 CARES Act, tax laws were adjusted to make qualified improvement property (aka “QIP”) eligible for 100% bonus depreciation. According to Wealth Management, “QIP is defined as any improvement to an interior portion of a building which is non-residential real property, if such improvement is placed in service after the date the building was first placed in service (expenditures attributable to the enlargement of the building, any elevator or escalator, or the internal structural framework of the building are excluded).” So there may still be time to complete these QIP improvements.
With Quarem, you can automate and organize data related to taxes so it’s ready when you need it. Request a demo today!