There are various types of real estate investments. Each has different tax strategies; however, in this commentary, we will solely focus on direct investment in commercial, residential and multifamily properties.
For most investors, tax strategies play a crucial role in the profitability of the investment. Not having a strategy in place can quickly eat away any realized gains. There are numerous items to consider on the front end of investing in real estate, from the deal structure to the time invested and the holding period. These are all essential aspects that will drive taxation.
Consider the type of lease: For tax purposes, a gross lease could be more advantageous than a triple-net lease. While triple net leases are easier to manage, they can have unintended tax consequences. Most business income is eligible for the Qualified Business Income (QBI) deduction, which can be up to a 20% deduction.
Unfortunately, triple-net…
