Tax Advantages of Commercial Real Estate Investing

Residential real estate can be a very lucrative investment. Unlike stocks, bonds, and other more conventional financial investments, most individuals have first-hand experience with both sectors, particularly as tenants and current homeowners. It is not uncommon to own a piece of residential real estate and rent it out for a substantial profit. If you are considering investing in residential rental properties, there are several issues to take into account. Here are some things to keep in mind.

One issue to take into consideration is that of tenants. Many landlords will want their rental units to be fully furnished. However, most tenants will insist on at least some basic furniture, such as a couch and a few tables. If you do decide to run afoul of this requirement, you will need to determine whether or not your property must meet the minimum standards set forth by your state’s fair housing law.

On the one hand, you could elect to purchase a property that already has tenants. For those who don’t foresee themselves spending a great deal of time in their rental units, this could be a good strategy. You will only need to oversee your apartment complex and make sure that tenants are maintaining the property in a decent manner.

The other option is to buy a residential property that is not zoned for single-family occupancy. While this is not as risky as non-residential land, it may not offer quite the lucrative opportunity for investment that zoned residential property does. These types of properties are sometimes easier to sell because they are usually located close to centers of population, such as schools. However, they will still need to abide by the same laws as non-residential property. This means that any updates to rules or regulations need to be approved by the governing board in charge of regulating residential properties.

Zoning laws for commercial and industrial property can vary just as greatly as those for residential land. One thing to keep in mind is that there is some overlap between these types of properties. For example, the zoning laws for agricultural land will often prevent a farmer from building an apartment complex on his land. However, if the farmer were to build a row of apartment units on his piece of land, he would likely be able to do so. In this case, both the farmer and the apartment complex would benefit from the zoning regulation.

The final category is for retail real estate. Unlike residential rental property, this type of property will allow tenants to rent the units on a month-to-month basis. The key to success with this type of property is to find a property that allows for tenant turnover. If you own property that is easily capable of letting tenants move, then you will have far greater success with your retail real estate investment.

Tax advantages can also be found when investing in commercial and residential rental property. If you own property that will rent to people on a month-to-month basis, you may be able to deduct your expenses related to leasing the units each month. Be sure to review your receipts and any related documentation with the IRS for any deductions that you may be entitled to. In addition, if you have paid property taxes on your commercial real estate before being allowed to deduct the tax amount related to your residential rental property, make sure to claim that debt on your taxes this year as well. Claiming all related expenses at the tax season will significantly improve your chances of having your tax return filed on time and will lower your taxable income.

One of the most tax benefits associated with investing in commercial and residential rental property is depreciation. When you buy properties that have a lot of depreciation, you are able to deduct the depreciation each year. As property depreciates, it becomes more expensive to maintain the unit. If you own a vacation rental home that has a lot of depreciation and it is possible to deduct the cost of maintaining the property each year, you may be able to save a significant amount of money on your taxes each year.