Tax Benefits of Investing In CRE
Investing in commercial real estate isn't just about building a strong portfolio or generating consistent income—it can also offer significant tax advantages that make it an attractive option for investors in Arkansas and beyond.
Whether you’re a seasoned investor or just getting started, understanding these benefits can help you maximize your returns and grow your wealth strategically.
Depreciation Deductions
One of the most significant tax benefits of CRE is depreciation. The IRS allows investors to deduct the cost of the building (excluding land) over a set period—27.5 years for residential rental properties and 39 years for commercial properties. This deduction can reduce your taxable income, even if your property is appreciating in value, effectively lowering your tax liability while the property continues to generate income.
Mortgage Interest Deduction
Interest on loans used to purchase or improve commercial properties is tax-deductible. This includes mortgage interest and, in some cases, interest on lines of credit used for property improvements or business operations. Deducting these expenses can provide substantial savings, especially in the early years of ownership when interest payments are highest.
Expense Deductions
Owning and operating a commercial property comes with expenses, many of which are fully deductible. These can include:
- Property management fees
- Repairs and maintenance
- Property insurance
- Utilities and operating expenses
By tracking these costs carefully, investors can significantly reduce taxable income while maintaining the property.
1031 Exchange Opportunities
A 1031 Exchange allows investors to defer paying capital gains taxes when selling one property and reinvesting the proceeds into a “like-kind” property. This strategy can help you grow your portfolio, increase cash flow, and defer taxes, providing more flexibility and long-term financial benefits.
Pass-Through Deduction (Section 199A)
Under current tax law, certain commercial real estate investments may qualify for the pass-through deduction, allowing eligible investors to deduct up to 20% of qualified business income. This can further reduce tax liability on rental income generated by CRE investments.
Opportunity for Long-Term Capital Gains
Investing in commercial real estate with a long-term horizon can qualify profits for favorable capital gains tax rates. Compared to ordinary income tax rates, long-term capital gains are often lower, helping investors keep more of their earnings.
Why Work With a Commercial Realtor
Understanding and leveraging these tax benefits requires careful planning and the right guidance. Working with a commercial realtor like me (Cassie Wells), who knows the Arkansas market, can help you identify properties that align with your investment goals while maximizing the financial and tax advantages available to you.
Commercial real estate isn’t just a property purchase—it’s a strategic investment in your financial future. With the right guidance and knowledge, CRE can offer both consistent income and meaningful tax benefits.
📞 Ready to explore commercial real estate opportunities in Arkansas? Contact me today to get started!
Cassie Wells - Keller Williams Realty Little Rock, Arkansas
501.993.1973
cassie@cassiewells.com
12814 Cantrell Rd, Little Rock, Arkansas
What Does a Commercial Realtor Do?
