With commercial real estate, when your property has increased in value, you
have the choice of simply selling the property outright and getting a big
check at the closing table (after taxes, of course) or using the magic of a
1031 tax-deferred exchange, which allows you to make even more money.
A 1031 tax-deferred exchange allows you to roll over money that you get
from the sale of your old property into a new property while deferring
paying taxes. So, if you’ve made $200,000 in the first commercial property
that you’ve invested in, you can sell this property and buy a second one by
using the $200,000 as a down payment.
When it comes time to sell your second property, you can take your original
$200,000 in profits from the first property, along with whatever you made in
the second property and continue to roll over the gains again into yet another
Be sure to deduct your accounting and bookkeeping expenses, and don’t let
us catch you doing your own accounting or bookkeeping! Your time is much
more valuable than that! Instead, hire someone to take care of your books for
you. And remember that everything you spend in this category is completely
deductible as an expense in your real estate business.
From time to time, you’ll likely want to bring in consultants to help you strategize
or to guide you through an area in which you don’t have expertise, such
as condo conversions. Paying these consultants is an expense to your business
and therefore fully deductible. Here are some consultants who you may
use and whose payments are deductible: appraisers, financial planners,
mentors, and architects.
Many tax advisors cost of researching your business and educating yourself
is deductible as well. Going to real estate-related seminars, buying books,
tapes, trade magazine subscriptions, and dues to professional organizations
usually are too.
Home office expenses
For most real estate investors, it’s great working from home. Our friends often
tease us about walking into the kitchen and grabbing a cup of coffee, and then
arriving at our offices about 30 seconds later. The good news is that all of your
expenses for your home office are completely deductible. That includes the
cost to heat or cool your office, to clean your office, and other things that
people have to pay for even though they don’t have a commercial real estate
investing business. (By the way, your dog and the family piano can’t be considered
expenses — no matter how much better they help you work.)
Office equipment such as computers, fax machines, copiers, and phones can
be fully deducted. And don’t forget the beautiful leather office furniture and
mahogany desk and shelving!