The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful:
Investing in commercial real estate as a whole comes along with some clear tax advantages. 1031 exchange benefits, depreciation benefits, and writing off interest expenses for loans are a few clear cut tax advantages that come along with commercial real estate investment. Those investments that qualify for accelerated depreciation allow for more sheltering of cash flow from that particular real estate investment, and potentially other real estate investments as well.
Richard Wilson: Are there any tax advantages to investing in triple net real estate versus other types?
Peter Von Der Ahe: In general, I think there are 3 or 4 major tax advantages for investing directly in commercial real estate itself. Just quickly, one is the 1031 exchange, the other is being able to use depreciation, the other is being able to write off your interest expense when you get a loan. As far as the special tax characteristics, some types of real estate qualify for bonus and accelerated depreciation, which allow you to shelter more cash flow, and if you have cash flow from other investment real estate it may carry over and shelter that cash flow as well. So, we see this mostly when you’re selecting certain types of assets that have accelerated depreciation. And then if you combine them with something called a cost segregation study, that’s where you get a real pop in terms of the depreciation benefit.
Richard: Sure, okay.