Don't Overlook These 5 Tax Incentives!

[Julio Gonzalez]

Real estate investing can be very complex and while there are many things for investors to keep track of and pay attention to, make sure you aren’t overlooking these 5 tax incentives! You could be missing out on tax credits which have a direct impact on your available cash flows. Let’s discuss these tax credits.

1. Energy Tax Credits
   1. Two of the most popular energy tax credits available to real estate investors are 45L tax credit and Section 179D deduction. 45L allows for up to $5,000 in tax credits for those who invest in energy-efficient multi-family properties and homes. 179D allows for up to $5 per square foot deduction for commercial and four-story plus residential buildings as long as they meet energy efficient and labor requirements.
2. Dispositions
   1. When renovating or demolishing a building, if real estate investors dispose of individual assets, they can earn business deductions. This approach can lead to not only a more valuable and sustainable building but also additional tax incentives and savings. A disposition study can help investors identify eligible assets for disposal and claim all tax deductions and credits available, thus leading to increased profitability.
3. Cost Segregation
   1. This is a very under-utilized tax strategy that can lead to incredible tax savings in the first year of placing a property into service. A cost segregation study reclassifies the building components between real property and personal property which allows for accelerated depreciation, thus reducing the taxpayer’s tax liability. This frees up cash to be used to improve the property, purchase new properties, or invest in other income-generating opportunities.
4. Wireless Infrastructure Technology
   1. Property owners could make up to $20,000 in annual revenue by utilizing 5G rooftop or land leases. This is a great way to fully capitalize on your property and generate an additional revenue stream.
5. Recapture Minimization
   1. Real estate investors are able to allocate the purchase price between real property and personal property in order to minimize recapture taxes. It’s typically best for a property owner to hold the property for 3-5 years after getting a cost segregation study in order to give themselves enough time to invest the new cash flows and make the most of the investment.

There are many lucrative tax incentives available to real estate owners. Ensure you are working with qualified tax professionals to help you take advantage of these credits.

Have you utilized any of these tax credits?