Commercial real estate owners are continually searching for ways to enhance profitability and manage expenses. One of the most effective strategies for achieving this is through tax savings. Understanding and implementing advanced tax-saving strategies can make a significant difference. This article explores five additional tips that can help commercial real estate owners maximize their tax savings. These approaches not only promise immediate financial benefits but also contribute to long-term value creation. Let’s delve into these strategies to ensure you’re making the most of the available tax advantages.
1. Maximize Property Tax and Operating Expense Deductions
Property taxes paid on CRE are deductible in full. Additionally, ordinary operating expenses like utilities, insurance, management fees, and marketing are immediately expensible. In 2025, with potential local tax hikes, these deductions offset income effectively. Use detailed records to categorize expenses correctly. Appeal assessments if overvalued to lower the base tax.
2. Differentiate Repairs from Capital Improvements
Repairs (e.g., fixing a leaky roof) are deductible in the year incurred, while improvements (e.g., full roof replacement) must be capitalized and depreciated. Proper classification avoids under- or over-deducting. The IRS's "betterment, adaptation, restoration" test helps distinguish. This tip can accelerate thousands in deductions annually. Consult guidelines or a pro for borderline cases.
3. Invest in Energy-Efficient Improvements
Section 179D offers deductions up to $1.88 per square foot (adjusted for inflation in 2025) for energy-efficient commercial buildings. Credits for solar panels, HVAC upgrades, or lighting can reach 30% under the Inflation Reduction Act. These not only save on taxes but also reduce utility costs long-term. Certification by a qualified professional is required.
4. Explore Opportunity Zone Investments
Defer and potentially eliminate capital gains by investing in Qualified Opportunity Funds (QOFs) targeting economically distressed areas. Gains invested by 2026 can see 10-15% exclusions if held 5-7 years, with full exclusion after 10 years. In 2025, this remains viable for CRE development in zones. Benefits extend beyond initial deadlines for ongoing holdings.
5. Use Partial Asset Dispositions
When replacing components (e.g., HVAC system), deduct the remaining basis of the old asset immediately rather than continuing depreciation. This avoids double-counting and provides upfront savings. Combined with cost segregation, it's powerful for renovations. Ensure compliance with IRS regs for accurate basis tracking.
By implementing these additional tax-saving strategies, commercial real estate owners can significantly enhance their profitability and manage their expenses more effectively. From maximizing deductions on property taxes and operating expenses to exploring energy-efficient improvements and Opportunity Zone investments, each strategy offers distinct advantages tailored to the evolving tax landscape. These approaches not only provide immediate financial relief but also contribute to the long-term value and sustainability of your investments. As tax laws continue to evolve, staying informed and proactive is key to optimizing your real estate portfolio's financial health. Always consult with a tax professional to tailor these strategies to your unique situation and ensure compliance with the latest regulations. With the right planning and execution, commercial real estate owners can unlock substantial tax savings and achieve greater financial success.