WHAT IS BONUS DEPRECIATION
Bonus depreciation is a tax incentive that allows commercial real estate investors to accelerate the depreciation of certain property assets, thereby reducing their taxable income and ultimately saving on taxes.
Enacted as part of the Tax Cuts and Jobs Act of 2017, this provision has been a gamechanger for real estate investors, offering a unique opportunity to supercharge their returns.
In the world of commercial real estate investment, opportunities abound, but the fear of missing out ona key financial advantage can haunt even the most
seasoned investors. One such advantage that demands the attention of every shrewd investor today is bonus depreciation.
CONSEQUENCE #1
Missing Out on Immediate Cash Flow Benefits
One of the most compelling reasons not to miss out on bonus depreciation is its ability to generate immediate cash flow benefits and tax savings. Under this provision, eligible property assets, such as improvements made to a commercial property, can be depreciated at an accelerated rate, often as much as 80% in the year of acquisition. This means a substantial reduction in taxable income and a substantial boost to your bottom line.
By not taking advantage of bonus depreciation, you could be leaving significant cash on the table. Every dollar saved in taxes can be reinvested into your real estate ventures, allowing you to expand your portfolio or enhance existing properties without compromising your cash flow. Keep in mind that bonus depreciation until 2023 was at 100% of the purchase price, so we’ve already lost out on 20% tax savings! What’s more, current legislation at the time of this article – which is subject to change – has bonus depreciation falling to 60% in 2024, 40% in 2025, and 20% in 2026 after which it will be completely phased out in 2027!
It is important to note that the 20% that we lost this year and the other subsequent reductions in bonus depreciation is still claimed over the useful life of the property, just not all at once like it used to be.
The bottom line: take advantage of bonus depreciation while you still can.
BONUS DEPRECIATION, PHASE-OUT SCHEDULE
2022 – 100%
2023 – 80%
2024 – 60%
2025 – 40%
2026 – 20%
2027 – 0%
CONSEQUENCE #2
Losing Out on Competitive Edge
In the fiercely competitive landscape of commercial real estate, investors are constantly seeking ways to gain an edge. Bonus depreciation can be a potent weapon in your arsenal. By leveraging this tax incentive, you can structure deals more advantageously, offering attractive terms to potential tenants or buyers. In a world where every negotiation counts, missing out on bonus depreciation could put you at a disadvantage.
Furthermore, savvy investors who harness bonus depreciation can improve their property’s financial metrics, making it more appealing to lenders, partners, and stakeholders. This competitive edge can open doors to lucrative partnerships and financing opportunities that would be otherwise out of reach.
CONSEQUENCE #3
Neglecting Wealth-Building Potential
Wealth accumulation in commercial real estate is not just about property appreciation but also about intelligent tax planning. Bonus depreciation can be a powerful wealth-building tool, allowing you to shelter a significant portion of your rental income from taxation. Over time, this can translate into substantial savings and wealth accumulation, which would be significantly hampered if you miss out on this tax benefit.
Moreover, bonus depreciation aligns perfectly with the long-term nature of commercial real estate investments. By reducing your tax liability today, you can
reinvest those savings to secure more properties, further diversifying your portfolio and compounding your wealth building potential.
Think about it, would you rather get your tax savings today or spread out over a number of years? The answer is simple!
CONCLUSION
The fear of missing out on bonus depreciation in the world of commercial real estate is not unwarranted. It is a legitimate concern that can have a profound impact on your investment returns, competitiveness, and long-term wealth building goals.
As an expert in the field, I strongly advise you to explore the potential of bonus depreciation, whether you are a seasoned investor or just starting in the industry. Ignoring this tax incentive could be a costly mistake, and it’s crucial to make informed decisions that maximize your financial advantage.
Bonus depreciation is not just an opportunity; it’s a financial imperative for commercial real estate investors looking to thrive in an increasingly competitive market. So, seize the opportunity, minimize your tax liability, and unlock the true potential of your investments. Don’t hold yourself back from achieving the financial success you deserve in the world of commercial real estate.
Position Realty
(480) 213-5251
