Many states and cities offer economic incentives to attract and retain profitable businesses contributing to their local economies. These incentives are in place not only to help businesses grow, but to attract other businesses and improve the local corporate community as a whole. No matter the sector, business owners should capitalize on these incentives to offset the costs of their commercial real estate portfolio.
What are Government Incentives?
When purchasing a commercial property, there is a long list of items to consider. From securing financing and a commercial real estate attorney, to contractors and software and management companies… the list goes on. But one item that should be high on the list of to-do’s is commercial real estate government incentives. Many states and municipalities offer incentives to attract and retain businesses whose profitability contributes to their local economies. They exist not only to help businesses grow but to attract other businesses and improve the area as a whole.
Let’s look into some of these available incentives for commercial real estate.
Job credits are incentives that are based on the amount and type of jobs that will be created by your project. The higher the amount of high-paying and skilled jobs created, the more attractive the incentives become. These would include things like payroll tax credits and local and state-level credits. Payroll tax credits are dollar-for-dollar credits that offset federal income tax liability. These credits can help reduce tax obligations and therefore free up cash that can be put back into the growth of the business. The IRS includes 29 different types of business tax credits on their website.
Real Estate Tax Abatement
Tax abatement programs help reduce, and in some cases eliminate, the amount of property tax owners pay on new construction, rehabilitation and/or major property improvements. With property taxes amounting to between 1-3% of a property’s value each year, capitalizing on tax abatement programs may be helpful. These credits are primarily available in areas with lower demand, such as city neighborhoods undergoing revitalization efforts, so it’s important to check with your local government to see if you qualify.
Tax Increment Financing
According to the Council of Development Finance Agencies, tax Increment Finance (TIF) is a mechanism for capturing the future tax benefits of real estate improvements, in order to pay for the present cost of those improvements. TIF is typically used in distressed or underdeveloped areas where development may not otherwise occur. The goal of the TIF is to channel funding toward these improvements to promote neighborhood stability and inspire future development.
Capital Improvement Projects
A capital improvement project is the addition of a permanent structural change or the restoration of some aspect of a property that will either enhance the property’s overall value, prolong its useful life, or adapt it to new uses. An example of a business-based capital improvement would be installing a new HVAC system or putting in Americans with Disability Act (ACA) accessible features in an existing building. The government policy is revised frequently, so it would be wise to read further into the governance.
Historic Preservation Tax Credits
In short, a 20% income tax credit is available for the rehabilitation of historic, income-producing buildings that are determined by the Secretary of the Interior, through the National Park Service, to be “certified historic structures.” Every year, the Technical Preservation Services approves nearly 1,200 projects, totaling some $6 billion annually. If you are purchasing an old building, it would be beneficial to see if it would qualify for any historic preservation tax credits.
Energy Efficient Incentives
Since the most recent presidential election, the Biden administration put climate change initiatives at the top of its priority list through its Build Back Better plan. In November 20221, the Build Back Better Act was passed and this brought about $555 billion in dedicated funds to combat climate change– including enhancements to Section 179D, the energy efficient commercial building tax deduction.
This deduction allows taxpayers to claim a deduction for as much as $1.80 per square foot for commercial-building energy-efficient improvements with greater than 50% energy savings. Owners of commercial buildings who built or installed improvements after January 1, 2006 are eligible for deduction.
But, this is just one form of energy efficient savings, among hundreds available. How do you find what is available, what you’re eligible for, and where to start? IncentiFind is the nation’s go-to database for commercial real estate and home improvement incentives. With IncentiFind, you enter your property address and answer a few questions, and their massive database finds tax credits, grants, fee waivers, rebates, bill credits and so much more. This doesn’t just apply to new construction, but existing buildings as well. IncentiFind helps your project locate incentives for areas including water conservation, historic re-use, PACE eligible areas, smart building technology and so much more.
Locating commercial real estate incentives through capital improvements and payroll tax credits are just a few of the ways to offset the cost of your commercial real estate portfolio. Investing in a commercial real estate asset management software is a must, too. Contact STRATAFOLIO to learn how our technology can save you thousands of dollars each year.