Unlocking Tax Benefits in Massachusetts Commercial Real Estate

Commercial real estate investment offers some of the most significant tax advantages available to investors. Understanding how to use these tools can dramatically improve your after-tax returns and accelerate your portfolio growth.

Depreciation.. One of the most powerful tax benefits of commercial real estate is depreciation. The IRS allows you to deduct the cost of the building structure (not the land) over 39 years for commercial property. This non-cash deduction reduces your taxable income each year, even if the property is appreciating in value.

Cost Segregation.. A cost segregation study is a tax strategy that accelerates depreciation by identifying personal property and land improvements within a commercial building that can be depreciated over 5, 7, or 15 years instead of 39. This front-loads deductions and can result in significant tax savings in the early years of ownership.

The 1031 Exchange.. Section 1031 of the Internal Revenue Code allows investors to defer capital gains taxes when selling investment property by rolling the proceeds into a like-kind replacement property. There are strict timelines: you must identify a replacement property within 45 days of closing and close on it within 180 days.

Interest Deductions.. Mortgage interest on commercial real estate is generally fully deductible as a business expense. This can offset significant income, particularly in the early years of a mortgage when interest payments are highest.

Pass-Through Deduction (Section 199A).. Qualifying income from commercial real estate held in a pass-through entity may be eligible for a 20% deduction under Section 199A. Consult a tax advisor to determine whether your holdings qualify.

The Insurance Connection.. Proper insurance is a deductible business expense for commercial property owners. More importantly, having adequate property and liability coverage protects the asset that generates all these tax benefits. AMD Insurance Group works with commercial real estate investors in Massachusetts to structure comprehensive insurance programs. Contact us to learn more.