Want to minimize your tax bill? Commercial real estate could be the answer.
If you’re a high-net-worth individual, odds are you just wrote a sizable check to the IRS. While nothing eliminates taxes, commercial real estate may offer strategies to defer gains, offset income, and plan more efficiently.
Here are some ways many high-net-worth individuals use commercial real estate as part of a long-term tax strategy.
1. Depreciation: A Paper Deduction with Real Potential
Commercial properties lose value over time—at least on paper. The IRS allows owners to deduct a portion of that value each year, a process known as depreciation. This can help high-net-worth individuals reduce their taxable passive income, even if the property’s market value is increasing.
Why It Matters:
- Most commercial assets depreciate over 39 years
- Cost segregation studies may accelerate those deductions
- Creates paper losses that can reduce overall tax liability
Learn more about how depreciation can impact your commercial real estate investments.
Note: Depreciation does not eliminate taxes—it may defer them or reduce taxable income in specific scenarios.
2. 1031 Exchange: Reinvest, Reposition, and Potentially Defer Gains
High-net-worth individuals who sell appreciated commercial property may face a steep capital gains tax bill. The 1031 Exchange offers a way to reinvest sale proceeds into another qualifying property—deferring the capital gains tax in the process.
- Must follow IRS timelines (45 days to identify, 180 days to close)
- Requires a qualified intermediary
- Can be repeated across generations when paired with estate planning
This strategy is widely used by high-net-worth individuals exiting real estate positions and seeking continued portfolio growth.
3. Passive Income and Tax Treatment
Income from commercial properties is generally considered passive income, which is treated differently from wages or earned income. High-net-worth individuals often pair this income with depreciation to manage when and how they pay taxes.
- May qualify for long-term capital gains rates
- May allow use of passive activity losses to offset income
- Often a more efficient income stream when combined with depreciation
Consult a licensed tax advisor to understand how passive activity rules apply to your situation.
4. Using LLCs, Trusts, and DSTs for Legacy and Tax Planning
Many high-net-worth individuals structure their investments through LLCs, trusts, or Delaware Statutory Trusts (DSTs) to support both tax efficiency and estate planning goals.
- Can help streamline ownership transfer
- May reduce estate tax exposure
- Often used to position assets for a stepped-up basis at death
Learn why some investors use trusts and LLCs to structure their holdings
These structures should be set up in consultation with estate planning professionals.
Why High-Net-Worth Individuals Are Turning to CRE to Manage Tax Exposure
If you’re looking for ways to manage future tax exposure, it may be time to rethink how your portfolio is structured.
Commercial real estate won’t make taxes disappear—but it may give high-net-worth individuals more control over the timing and structure of when they recognize income and gains.
At First National Realty Partners, we work with accredited investors looking to access institutional-quality CRE opportunities that may support long-term tax planning and passive income strategies.
Want to see how our current investments align with your tax strategy? Access our investment offerings below.
Disclaimer: An investment in commercial real estate is speculative and subject to risk, including the risk that all of your investment may be lost. Securities are only available to verified accredited investors who can bear the loss of their investment. FNRP and its affiliates do not provide investment, financial, tax, legal or accounting advice. The contents of this e-mail have been prepared for informational purposes only, and are not intended to provide, and should not be relied on for, investment, financial, tax, legal or accounting advice. You should consult your own investment, financial, tax, legal and accounting advisors before engaging in any transaction.
