Although Texas is known for relatively high property tax rates, it offers a number of tax advantages to commercial investors. There are certain actions real estate investment companies may consider to reduce their taxes. Several of these apply throughout the country.
1. Invest in green
Texas encourages environmentally friendly practices. It offers renewable energy franchise tax exemptions and benefits. Many federal incentives are also available for the usage of wind, solar and other sustainable power sources. The investment tax credit allows the deduction of 26% of the price of the installation of a solar energy system from federal taxes when conditions are met, without a cap on the deduction. This is only one of many incentives offered on a nationwide level.
2. Contribute to the community
Real estate companies may choose to donate a section of land to a state, county or city for community purposes like the development of a public road. This may qualify for a charitable tax deduction. Among other requirements, to take full advantage of the deduction, the donor should not receive any advantage from its gift of property.
3. Consider a Section 1031 transaction
This refers to Section 1031 of the U.S. Internal Revenue Code, or IRC. That provision allows deferral of capital gains tax if a business immediately puts proceeds from a property sale into a similar investment of at least equal value. Essentially, this requires sale of one property and purchase of another within a short time, along with other requirements. By repeating such exchanges over time, a company may avoid taxes from a series of investments, deferring the tax until years later when sells the final property.
Abundant government tax incentives may offset Texas’s steep property tax rates. The rising population of metropolitan areas also contributes to making the state a good one to consider for real estate investment.