Top 10 Tax Benefits of Commercial Real Estate Investing

For accredited investors seeking long-term, tax-efficient growth, commercial real estate offers a uniquely powerful advantage: the tax code. Through a combination of strategic depreciation, income shielding, and capital gains deferral, commercial real estate provides benefits rarely matched by other asset classes. At Hanson Capital, we help our investors unlock these advantages through carefully structured industrial real estate and private credit offerings. Here are the top 10 tax benefits of commercial real estate investing—and why they matter now more than ever.

1. Depreciation Deductions

Commercial properties are depreciated over 39 years, allowing investors to reduce taxable income through annual deductions. This non-cash expense is one of the most powerful long-term benefits of owning income-generating real estate.

2. Bonus Depreciation & Section 179 Expensing

In July 2025, the One Big Beautiful Bill Act (OBBBA) reinstated 100% bonus depreciation for qualifying assets placed in service after January 19, 2025. This means investors can deduct the entire cost of eligible improvements—such as HVAC systems or roofing—in the same year the work is completed. The OBBBA also enhanced Section 179 expensing, further boosting the ability to capture upfront tax savings on certain property improvements.

3. Cost Segregation Studies

Cost segregation allows you to break a property into components with shorter useful lives (5, 7, or 15 years). This accelerates depreciation and can produce significant upfront tax deductions—which can lead to savings of 20–40% of the purchase price in the first couple years.  We use cost segregation studies on most acquisitions to maximize efficiency. For example, on a hypothetical $10 million property, this approach could generate $2–4 million in first-year tax deductions.

4. 1031 Like-Kind Exchanges

Investors can defer capital gains taxes by reinvesting proceeds from selling one property into another qualifying property. By using a qualified intermediary and meeting IRS deadlines (identify within 45 days, close within 180), 1031 exchanges enable portfolio growth while deferring tax obligations.  Another staple of the Hanson Capital process is finding the subsequent investments and providing investors options to roll investment and gains forward deferring taxes legally as long as they like.

5. Opportunity Zone Incentives

By investing gains into Qualified Opportunity Funds within 180 days of sale, investors may defer capital gains and, if held for 10 years, potentially eliminating tax on gains from the new investment. These opportunities encourage long-term capital allocation to underserved communities while offering a compelling tax advantage.  

6. Pass‑Through Income Deduction (QBI – Section 199A)

Investors holding commercial property through pass-through entities (LLCs, partnerships, S-corps) may qualify for a 20% deduction on qualified business income. This applies even to passive rental income in many cases, substantially reducing overall tax liability for high-net-worth individuals.

7. Interest Expense Deduction

New tax rules as of 2025 allow interest expense deductions to be calculated using EBITDA instead of EBIT. This seemingly small change can significantly increase the deductible amount for leveraged investors, improving post-tax cash flow.

8. Energy Efficiency Incentives (Section 179D)

If your commercial building meets certain energy efficiency thresholds, you may qualify for deductions up to $1.80 per square foot. This incentive supports sustainability while enhancing after-tax returns.  This is another assessment we run, always finding the most efficient way to invest.

9. Stepped-Up Basis for Heirs

When commercial real estate is inherited, the cost basis is stepped up to market value as of the date of death. This eliminates capital gains taxes on appreciation that occurred during the decedent’s lifetime, making it a powerful tool for generational wealth planning.

10. Deductible Operating Expenses

From property management fees to insurance and travel related to the investment, many operating costs are fully deductible against rental income—further enhancing net income and tax efficiency.

What This Means for Investors

These benefits aren’t just theoretical—they can be pivotal in shaping your investment strategy:

• Improved Cash Flow: Accelerated depreciation and interest deductions allow for higher after-tax income, especially in the early years of ownership.
  
• Portfolio Growth: Tax deferral strategies like 1031 exchanges enable continued reinvestment without eroding returns.
  
• Long-Term Tax Planning: Estate planning tools like the stepped-up basis help preserve and pass on wealth efficiently.
  
• Custom Structuring: Investors using LLCs or partnerships can leverage pass-through deductions and flexible asset management.

Whether you’re investing individually, through a fund, or via a private credit vehicle, these strategies can significantly enhance total returns and reduce effective tax rates.

Important Considerations

As with all tax strategies, it’s essential to understand the rules and consult with qualified professionals. Here are a few key points to keep in mind:

• Depreciation Recapture: When a property is sold, previously claimed depreciation may be subject to tax unless deferred through a 1031 exchange.
  
• Documentation Requirements: Cost segregation studies should be conducted by qualified firms to ensure compliance with IRS guidelines.
  
• Investment Fit: Not all properties offer equal tax benefits—age, improvements, and use all factor into eligibility.
  
• Legislative Updates: Tax policy is dynamic and fluid. Staying informed is essential.
  
• Professional Guidance: Working with CPAs, tax advisors, and real estate counsel is critical to executing these strategies effectively and legally.

Final Thoughts

Tax efficiency is one of the most compelling reasons high-net-worth investors choose commercial real estate. These advantages not only enhance income and returns—but also provide tools for compounding wealth, preserving capital, and executing legacy planning strategies.

At Hanson Capital, we combine institutional experience with a boutique approach to deliver tax-advantaged, yield-driven opportunities in commercial real estate and private credit. With a 100+ year collective track record within our executive team and a stable network of accredited investors, our mission is to help you build lasting wealth through smart, strategic investments.

Ready to take advantage of today’s most powerful real estate tax strategies?
Contact us to learn how Hanson Capital can help you invest with confidence—and tax efficiency.

If you’re curious about how our approach could fit into your portfolio, visit our website or schedule a call to connect with our team. We’d love to talk through what we’re seeing and where we’re going next.

Important Disclosure & Legal Notice

The information contained herein is provided for educational purposes only and does not constitute tax, legal, or investment advice. Hanson Capital is not a law firm, tax advisor, or accounting firm, and no portion of this material should be interpreted as a guarantee of tax outcomes or investment performance.  Prospective investors should consult their own independent tax, legal, and financial advisors before making any investment decision.

Tax strategies, including but not limited to depreciation, bonus depreciation, cost segregation, 1031 exchanges, Opportunity Zone investments, and pass-through deductions, are highly dependent on individual circumstances and are subject to change under current or future legislation. Past or hypothetical examples, such as potential depreciation write-offs, are illustrative only and do not represent actual or guaranteed results.

This material is not an offer to sell or a solicitation to buy securities. Investments in Hanson Capital funds are offered only to accredited investors through official offering documents, including a Private Placement Memorandum and Subscription Agreement, which describe risks, fees, and potential conflicts of interest in detail. Investing in private real estate involves risk of loss, illiquidity, and lack of guaranteed returns.