As tax laws, rules, and regulations tend to change frequently, investors must stay abreast of changes in 2022 to ensure taxes are handled correctly. Even with these changes, however, commercial real estate investment remains an area that benefits from significant tax benefits.

How would the proposed capital gains tax affect commercial real estate investors?

Some real estate investors were concerned about the timing of their sales, wanting to dispose of a building before December 31, 2021, due to potential concerns with tax law changes in the new year. Projected increases in capital gains taxes were of particular note, or that sales closed during the year could push investors into a higher tax bracket.

Whenever you sell a property, you could find yourself in a higher tax bracket for that year. This is something to consider, particularly if you are selling a commercial property, as it could significantly impact your capital gains for that period.

Apart from these concerns, commercial real estate investors might not see many other major surprises in 2022.

Investors who want to maximize their returns should work with a tax professional.

For any commercial real estate investor, finding a qualified tax professional is one of the first and most important steps. Working with a professional can help reduce your levels of stress and use some of the best strategies when it comes to taxes and your property.

Choosing a tax professional is an important decision. It is best to have someone on your side who understands your business and knows how tax laws work and what changes there will be for 2022 and beyond.

Strategies to reduce your 2022 Commercial Real Estate Tax Burden

As a commercial real estate investor, you will have access to various tools and options that could help lessen your tax burden.

A 1031 exchange is one way to defer capital gains tax. This type of transaction requires divesting from one asset to replace it with another similar property within a certain time frame. It is popular because it allows you to stay more liquid, but the IRS is strict about 1031 exchanges, so you need to be sure you are following the rules precisely.

Alongside a 1031 exchange, you should also familiarize yourself with potential deductions you can claim.

Depreciation

Depreciation is a key deduction you do not want to overlook. While land cannot be depreciated, buildings can be and do. Depreciation will effectively reduce the taxable income of a property without reducing its cash flow.

Employee Wages, Independent Contractor Costs, and Professional Fees

The wages you pay to employees or independent contractors are tax deductible on Schedule E of the tax return. However, if you work with independent contractors and you pay them more than $600 in a single calendar year, you will have to send and file 1099s for them, since you qualify as a professional commercial real estate investor.

If you incur any professional fees while operating your business, you can deduct those costs as well. These include legal fees, property management fees, and accounting fees.

Repairs and Maintenance

You can deduct any expense you incur to maintain, improve or repair your property in the year it was incurred. Larger changes to the property could qualify as capital improvements, and these would have to be depreciated over the course of several years.

It is a good idea to itemize your expenses related to all of the various projects falling into this category. This will make it easier for you or your tax specialist when it comes time to file.

Transportation

You may be able to deduct business-related travel costs if you frequently visit the commercial properties. For example, if you are traveling to and from the properties for business purposes other than managing them, your transportation costs will be tax deductible. However, as with all deductions, there are specific rules and regulations that must be followed. As your tax specialists will tell you, the last thing you want is for your business to be audited.

Of course, these are just a few of many deductions available to you as an investor in commercial real estate. Your business is no different than any other business, so the same deductions other businesses receive may apply to you.