Are You Maximizing Commercial Real Estate Tax Advantages?

Are You Maximizing Commercial Real Estate Tax Advantages?

Whether you currently own commercial real estate or are considering whether to jump into the market, of the many pros and cons you evaluate, don’t forget to take a look at related tax and investment benefits. Here are a couple that stand out:

Depreciation deductions on income taxes.

As a physical asset that will wear down over time, CRE investors can deduct a defined amount from income taxes each year for depreciation. Residential buildings can be depreciated over 27.5 years, while commercial buildings can be depreciated over 39 years. So, if you buy a commercial building for let’s say $5 million, your income taxes can be reduced by $128,000 each year for depreciation.

If you want larger depreciation deductions over a shorter period of time, you can do that, too, by engaging an engineering firm to conduct a cost depreciation study to identify parts of the property that can be depreciated in less time.

Again, going back to the commercial building you buy for $5 million, let’s say the cost depreciation study identifies $1 million in parts that can be depreciated in 10 years rather than 39. You’ll be able to pay a $100,000 depreciation deduction each of the first 10 years you own the property. Between this portion of the deduction plus depreciation deductions for the rest of the property, for the first 10 years your depreciation deductions will equal about $202,000. That amount goes down to $102,000 for each of the remaining 29 years.

Bonus depreciation.

With the Tax Cuts and Jobs Act (TCJA) of 2017, there is bonus depreciation to qualified improvement property put in service before year-end. Up through 2022, the bonus depreciation was up to 100% of a property’s value the year the property was placed in service. The bonus depreciation is phasing out, dropping to 80% in 2023; 60% in 2024; 40% in 2025; 20% in 2026; and 0% in 2027.

1031 exchange.

This allows you to defer capital gains taxes if you exchange one property for a “like-kind” commercial property in a defined period of time. The new property must be worth the same or more than the first property. After the new property is sold, capital gains taxes are due in full (unless you want to do yet another 1031 exchange, which will defer those taxes even longer).

Diversification.

Diversification is a strategy investors take to manage risk and minimize losses. By diversifying or spreading investments across several different options (i.e., CDs, bonds, stocks, mutual funds, etc.), you hope that if one tanks the others will make up for it. Unlike traditional investment options which typically have a similar reaction during recessionary times, there is another one that may help stabilize a portfolio: CRE. While there are no guarantees against losses, diversifying into CRE may help minimize risk.

Inflation hedge.

One way to protect your investment against a decrease in the purchasing power of your money is to “hedge” against “inflation.” Typically, when inflation rises, so do property values and rents; in turn, real estate returns go up.

There are other deductions associated with CRE investments, including transportation costs, employee wages, professional fees, contractor costs, and more. If you take a business loan to buy a CRE, you may also be able to take a 30% deduction on taxable income for equipment, technology, building repairs and materials, and renovations.

To ensure you take advantage of all the deductions that may be available to you as a CRE owner, make sure to work with a tax professional, like the ones you’ll find at RBT CPAs. We believe we succeed when we help our clients succeed. Want to learn more? Give us a call.

 

NOTE: This article is for informational purposes only and should not be construed to be advice or direction. If you are interested in learning more about purchasing CRE as an investment, be sure to speak with a CRE realtor and attorney.

RBT CPAs is proud to say all of our work is prepared in the U.S.A. – we never offshore. As a result, you get peace of mind that your operation’s financial and confidential information is handled by full-time, local staff who have met our high standards for quality, ethics, and professionalism.

New Resources Available to Build Up Immunity to Cyber Attacks

New Resources Available to Build Up Immunity to Cyber Attacks

Recently, a number of new and updated tools and projects have been launched by a variety of sources to help protect healthcare environments from cybercrime, and they couldn’t have come at a better time. According to one source, the number of security breaches appear to be slowing but the number of records impacted are increasing, indicating cyber criminals are becoming more sophisticated. (Vogel, Susanna. Scale of healthcare cyberattacks increase as criminals change tactics, report finds. August 22, 2023. Healthcaredive.com.)

Sharing learnings from cybersecurity firm Critical Insight’s 2023 Healthcare Data Cyber Breach Report,  HealthCare Dive notes,  “This year, 40 million people have been impacted by healthcare data breaches…Cyber attackers are now targeting vulnerable points in the supply chain, specifically the business associates or third-party companies that offer services to healthcare organizations.”

Just as criminals are getting smarter, so are the many organizations protecting health care practices, businesses and institutions and their patients. In recent weeks:

  • The U.S. Department of Health and Human Services launched DIGIHEALS to protect healthcare’s electronic infrastructure. Proposals are being sought for proven technologies that can apply to health systems, care facilities, and health devices.
  • An updated version of the Health Industry Cybersecurity Information Sharing Best Practices Guide (HIC-ISBP) – a compliment to the recently updated Matrix of Information Sharing Organizations – was released to help healthcare organizations create and maintain an information sharing program for cybersecurity threats. (McKeon, Jill. HSCC Releases Updated Guidance on Information Sharing Best Practices. August 24, 2023. com.)
  • Beckers’ Hospital Review provided a list of over 100 healthcare security companies helping to protect from data loss, promote smooth operations, and safeguard patient information. (Falvey, Anna and Talian, Brendan. 121 Healthcare Cybersecurity Companies to Know. August 3, 2023. com.)

Earlier this year, the U.S. Department of Health and Human Services (HHS) 405(d) Program released new tools to help bolster healthcare cybersecurity, including Knowledge on Demand (free training to improve cybersecurity awareness); Health Industry Cybersecurity Practices (HICP) 2023 Edition (a publication outlining risks, best practices, and suggested standards); and Hospital Cyber Resiliency Initiative Landscape Analysis (a report on cybersecurity preparedness and hospital benchmarking).

In addition, the American Medical Association has created a “toolkit” of sorts, providing numerous resources for addressing cybercrime all in one place.

As your organization/practice determines its next steps for cybersecurity, you can count on RBT CPAs to handle your accounting, audit, tax, and advisory needs. We believe we succeed when we help our clients succeed. To learn more, give us a call.

 

RBT CPAs is proud to say all of our work is prepared in the U.S.A. – we never offshore. As a result, you get peace of mind that your operation’s financial and confidential information is handled by full-time, local staff who have met our high standards for quality, ethics, and professionalism.