What To Know About Capital Gains Tax On Commercial Real Estate

Preparation is crucial for taxes, whether you plan to utilize software or hand-write your form. Even if you're prepared, getting started with tax preparation can be difficult, but it doesn't have to be. When it comes to capital gains, commercial real estate investors should be knowledgeable and understand it at a fundamental level. 

How Do Capital Gains Taxes Work?

Having a sound tax strategy is essential for multifamily or commercial real estate investing. Otherwise, an excessive tax bill could eat up a substantial percentage of your profits. Capital gains tax is the most important of all the taxes that an investor may have to pay due to their investment. 

Capital gains taxes are due when a taxpayer makes a profit from an asset sale such as commercial real estate, bonds, or valuable collectibles. Ordinary personal and commercial income and the sale of a person's primary residence are normally exempt from capital gains taxes.

Rates Of Capital Gains Tax On Commercial And Multifamily Properties

Capital gains taxes are levied on properties held for less than a year, whereas long-term capital gains taxes are levied on properties held for more than a year. In general (at least from a tax standpoint), "flipping" a business property and selling it in a year or less is more expensive than holding it for a longer period. 

Capital gains tax rates, like income taxes, vary depending on a taxpayer's income during the year in which they sell a property. The following rates are currently in effect:

  • 0 to $39,375: 0%
  • $39,376 to $434,5500%: $15%
  • $434,551+: 20%

What Are The Types Of Commercial Real Estate For Investment?

Commercial properties can be used for a variety of purposes; however, the following are the most common:

  • Industrial Property: Commercial properties like these might be among a commercial real estate fund's most valued assets. Industrial properties are frequently leased to high-credit, long-term tenants for multiple years, resulting in consistent and significant positive cash flows.
  • Multifamily Property: These assets typically have shorter lease terms and more turnover than commercial properties that are more business-oriented, such as industrial and office buildings.  
  • Office Building: The most common commercial property is an office building, which can range in size from a single-unit building for a single tenant to a high-rise building with hundreds of tenants.
  • Retail: This type of space is one of the most frequent types of commercial real estate. These commercial sites can range from modest strip malls with a few thousand square feet to large community centers with a quarter-million square feet of banks, restaurants, and specialty stores.
  • Special Purpose: Special purpose commercial property is designed specifically for specific uses, making it difficult to convert or utilize for other commercial reasons. These assets attract a high-quality mix of tenants who pay premium rental rates and benefit from prominent visibility in high-demand areas, making them good investments.

When Should I Hire A Professional?

Professional tax services range from simple filing to long-term strategic assistance. When reporting arduous taxes on commercial properties, tax professionals can save you time and possibly money. Some candidates who should consider hiring a tax specialist include:

  • Those who own a business
  • People going through a major life change (e.g., marriage, divorce, etc.)
  • Those who've had a transaction-heavy year (e.g., home sales)
  • Taxpayers who expect tax issues

Leave It To The Pros At Saint Investments

Professionals at Saint Investments are backed by years of investing expertise and founded by the high net-worthy investment partners. Using dependability, flexibility, and performance as basic foundations of their operational strategy, Saint Investments brings unique investment terms to the real estate world.

Cover all your bases with trusted professionals at Saint Investments and learn more about how to invest in income funds by scheduling a free consultation with our team today!

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