What kind of taxes are to be paid for commercial real estate properties?
As an owner of commercial real estate, it is essential to understand the taxes associated with your investment. Due to their familiarity with residential property, the majority of individuals believe that property taxes are the principal tax burden on real estate. However, when you own commercial property, you will be responsible for the additional taxes listed below.
Property Taxes
Your commercial property can be subject to property taxes from your county. This tax is comparable to residential property taxes. You are responsible for paying this tax if you own commercial property. In order to avoid having to pay the tax out of your own pocket, you should take this expense into account when determining the rent you charge for your property.
Federal Income Taxes
Your revenue from commercial real estate is subject to federal taxation. Any costs incurred by renting out the property may be written off. Taxes are solely levied on profits, not total income. Since you intend to repay security deposits to tenants, do not declare them as income. Even if you won’t pay income tax on the deposit if you don’t return it, you should utilize it for repairs. Be careful to calculate your rents in a way that will allow you to deduct federal income tax from your gross income.
State Income Tax
You will have to pay income tax on the income from your commercial property if your state collects business taxes. You can deduct expenses, just like with federal taxes, and only pay tax on your net profit. When calculating the rent for your business property, one of your expenses should be state income tax.
Local Taxes
You may need to pay county or city income tax in some areas. You will pay personal income tax on your business income even though this isn’t usually a business tax, therefore you should factor this tax into your calculations of the profits from commercial properties.
