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What Taxes are Applicable on Commercial Real Estate Property?

Property taxes are also known as a regressive form of tax. In a regressive tax system, the payables are calculated as a percentage of the value of the asset to be purchased. This means it can be rather disproportionate for low-income earners.

If you’re planning to purchase a real estate property for your business, then it is equally important to know about the property taxes levied. While in some states, it is only the real estate property that is taxable for businesses, in others, personal property may also be taxed.

To better understand how the federal government evaluates property taxes, we suggest you keep reading.

1. For Let Out Properties

In case, you own a property that you’ve let out for commercial or residential purposes, you will be required to pay double tax. While a usual tax on the value of the property would be levied, you’ll also need to pay taxes on the rental you receive.

To put this into perspective, the property tax is usually calculated as a percentage of its value. On the other hand, the tax levied on rental income usually falls under the category of income tax. It means, If you earn a total of, let’s say, $50,000 monthly from your rental property, you’ll be paying income tax on the same.

It is noteworthy that unlike income tax levied on the rental income, property tax does not depend on your earnings. Besides, the taxable amount is calculated annually against property valuation. As already mentioned, the low earners might actually find it difficult to pay the property tax.

2. Commercial Properties for Self Use

If you own a property and use it for your own commercial purposes, such as setting up an industry or a corporate office, the tax implications are not the same.

Usually, commercial property owners are only required to pay property tax for the real estate they own. However, as the experts at McKirdy, Riskin, Olson & DellaPelle, P.C. explain, the owners can file for tax returns or rebates when paying property tax. For example, if you carry out regular maintenance of your commercial property you can seek a tax rebate on the expenses.

Likewise, you can also claim a full interest in other business expenditures. However, you’ll still be required to pay taxes on the business activity that you conduct. In other words, you’ll need to pay for goods and services taxes that you consume.

3. Taxation on Property Sale

Lastly, there are taxes to be paid on property sales and purchases. Notably, this is only applicable whenever a monetary sum is paid against a real estate property.

To put this into perspective, the buyer and the seller would require to pay a tax on the sum paid, along with the regular property tax.

Taxes levied on property sales are rather simpler as compared to other property taxes. However, these are more relatable to people who deal in commercial real estate investments.

Whether you already own a commercial property or are planning to buy one, it is vital that you familiarize yourself with the applicable taxes. Besides, you should also seek assistance from a property tax attorney to help you better.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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