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Commercial Real Estate FAQ With Stephen Epstein On Real Estate Development & Investments

What Are Some Real Estate Related Tax Strategies For Investors To Keep In Mind?

The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.

The most tax advantages come when you hold onto a property, and there aren’t many strategies to take advantage of if you plan to invest and sell properties rather quickly. Of course, there might be some subsidies available for those who plan to develop and sell quickly, but there are plenty of tax perks that come along with purchasing land, developing that land, and holding onto that investment for the long run. Depreciation is a huge benefit, and one that works best when you develop your investment yourself. 

What are some real estate related tax strategies for investors to keep in mind? So, tax strategies for real estate really depend on whether you’re going to buy something and hold it for the long run, or whether you’re just developing something for the short run and then selling it. If you’re developing something for the short term, there really aren’t a lot of tax benefits. And that’s maybe unfortunate, but when you buy and hold you have a lot more tax incentive – such as depreciation. But if you’re a developer just building a building stabilizing it and selling it, you don’t really get any kind of meaningful tax deductions or tax breaks from doing that. Sometimes, in some areas, there’s tax credits available, but that’s a whole other subject of subsidies, sort of government subsidies, and local subsidies maybe for affordable housing or what have you. An area that I’m not terribly familiar with, but it’s definitely a specialty in real estate. So, if you live in an opportunity zone, there’s great tax incentives or if you want to do a development project in an opportunity zone, that’s new legislation that came out that provides some very favorable tax incentives. But, again, they require that you hold the property in order to maximize the tax benefit of the opportunity zone at least 10 years to get all the benefit of it. So, it really is set up to incentivize people to buy and hold real estate for the long term. 

The most advantageous thing you could ever do from a tax strategy perspective would be to build a project yourself and then hold it for a long period of time. And in doing that you would get the maximum amount of depreciation, because chances are you’d spend a lot of money relative to the amount of money you spent on the land. And so that, to me, is the holy grail, if you can build something yourself, develop it, lease it, stabilize it, and either refinance, refinance out the construction loan, and maybe pull some cash off the table through the refinancing process, and then hold onto it forever, and then you have some great depreciation and some great tax advantages. 

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Richard Wilson