These strategies offer CRE investors avenues to mitigate the impact of current market challenges and capitalize on tax benefits.

• Mortgage Interest Deduction: This benefit is available to CRE investors and is particularly advantageous in the initial years of a mortgage. It allows them to deduct interest from their income taxes.

• Term Loan Interest Deduction: If certain requirements are satisfied, such as not residing on the property and being held legally accountable for the loan, interest payments on CRE investments financed by a term loan are deductible.

• Depreciation: Investors can deduct depreciation for wear and tear on the property, with commercial and residential buildings having different depreciation periods. Accelerated depreciation can be achieved through cost segregation studies.

• 1031 Exchanges and Opportunity Zones: These allow investors to defer or reduce capital gains taxes. A 1031 exchange involves reinvesting the proceeds from a sale into a like-kind property, while investments in Opportunity Zones can defer or eliminate capital gains taxes.

Source: Paul Daneshrad, Founder & CEO of Star Point Properties. Forbes 11.30.23

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