Commercial ground-up construction is a challenging process that needs careful planning and funding. It is essential to arrange your financing in a way that maximizes tax advantages while minimizing costs if you want to guarantee the success of your project. In this article, we’ll go over several ways to structure your financing for tax benefits when building commercial properties from the ground up.

Use Tax-favored Financing Methods

Utilizing tax-advantaged financing options is one of the best ways to lower your tax obligation. Commercial real estate developers have a variety of options at their disposal, such as tax-exempt bonds, New Markets Tax Credits, and Low-Income Housing Tax Credits. Bonds that are tax-exempt offer financing at lower interest rates and can help you pay less in taxes because you are not required to pay federal income tax on the interest you earn from the bonds. Low-Income Housing Tax Credits and New Markets Tax Credits both offer tax credits for spending money in low-income neighborhoods and housing projects, respectively.

Take a Look at a Cost Segregation Study

Commercial property developers can categorize construction costs into shorter depreciable lives using a cost segregation study as a tax-saving tactic. You can benefit from quicker depreciation schedules as a result, which can lower your tax liability and free up cash flow. You can maximize the tax advantages of your construction project and minimize the amount of taxes due by properly classifying costs.

Invest using a Tax-Deferred Exchange

Commercial real estate developers can delay paying taxes on the sale of a property by using a tax-deferred exchange, also known as a 1031 exchange. Developers looking to sell an existing property and reinvest the proceeds into a new building project will find this tactic to be especially helpful. Developers can retain a larger portion of their equity in the new project by deferring taxes, which can lower costs and boost cash flow.

Make use of Tax Incentives

Utilizing tax incentives is another way to lower the tax bill for your construction project. Commercial real estate developers can take advantage of a number of tax benefits, including the Investment Tax Credit (ITC) and the Tax Deduction for Energy-Efficient Commercial Buildings. The Energy Efficient Commercial Buildings Tax Deduction offers a deduction for the price of energy-efficient building systems, whereas the ITC offers a tax credit for investment in renewable energy projects. You can lower your tax bill and free up cash flow for other areas of your construction project by taking advantage of these tax incentives.

Think about a Partnership Arrangement

Another efficient way to lower your tax bill and enhance cash flow in a construction project is to use a partnership structure. Through partnerships, multiple investors can pool their funds and split the project’s gains and losses. Because it enables you to spread the risk and lessen the impact of any potential losses, this structure can be especially useful for new construction projects. Furthermore, partnerships can be set up to maximize tax advantages and cut down on expenses.

Consult a Professional

Finally, when structuring your financing for tax advantages in new construction for commercial properties, it is crucial to get professional advice. An expert tax advisor can guide you through the intricate tax laws and regulations pertaining to the development of commercial property and make sure you take full advantage of all tax breaks offered. A financial advisor can also assist you in choosing the best financing options and in developing a financing strategy that takes into account your unique requirements and objectives.

Ground-up building is a difficult and pricey process that needs careful planning and funding for commercial properties. You can structure your financing to maximize tax benefits and reduce costs by using tax-advantaged financing options, thinking about a cost segregation study, utilizing tax incentives, thinking about a partnership structure, and getting professional advice. Keep in mind that preparation and organization are the keys to success in any construction project. You can make sure that your new construction project is a financial and operational success by taking the time to structure your financing properly.

F2H Capital Group is a debt advisory firm specializing in negotiating the best terms for your commercial real estate projects. The company offers a range of financial products and services, including fixed loans, bridge loans, and construction loans across all asset types. Please contact us for any of your financing needs.