Business Tax Credit Considerations for the Real Estate Industry
Taking advantage of tax credits starts long before tax season. It’s something that real estate businesses have to consider before breaking ground on a project or putting up the first “For Sale” sign. From the projects you take on to the people you hire, there are a number of tax credits and incentives that can help you keep more of your revenue.
Identifying Business Tax Incentives
Before you can claim tax credits you have to first identify them and then follow the requirements so that your company is eligible. This can be a very labor-intensive process since incentives and regulations can change at any time.
ADP business tax credits and incentives allow real estate businesses to more easily identify applicable tax credits within a database of over 3,000 incentives. They also have mapping software that allows you to search for tax incentives based on geographic location.
Where the Business is Located
Like real estate, taxes are all about location. Federal taxes are just one piece of the tax pie. State, county and city taxes can also come into play.
Some cities are luring in new businesses with tax breaks for a specified period of time. This can make startup much easier on a real estate business, however, forecasting for the added expense once taxes do kick in has to be done first.
The most tax-friendly states that offer the lowest combined tax rate are also worth considering if you are looking to start a business or relocate. For example, Delaware doesn’t have a sales tax and the property taxes are among the lowest in the country. This could be extremely beneficial for a business that is just starting out and purchasing a lot of equipment, supplies, etc.
Available Tax Credits for Real Estate Businesses
Right now there are many tax deductions and incentives for professionals working in the real estate industry. There are also lucrative tax credits that will lower your liability right off the bat. Some are specifically tied to real estate while others are tax credits that any business can claim as long as they meet the requirements.
Work Opportunity Tax Credit – The Work Opportunity Tax Credit can help you reduce your tax liability by $9,600 for every new employee that qualifies. The federal government has outlined specific target groups that employers must hire within to receive the credit. These groups include military veterans and people receiving social assistance.
Federal Empowerment Zone Employment Credit – This credit was recently extended and can be used to reduce your 2015 taxes. Businesses located in a designated Federal Empowerment Zone can get a tax credit of 20% on the first $15,000 paid to qualified zone employees. To qualify the employee must live and perform the majority of their work within a federal empowerment zone.
Federal Indian Employment Credit – This tax credit is designed to encourage businesses to hire individuals who live on or near a reservation. You don’t have to be in an empowerment zone to claim this credit. To qualify the employee must meet certain criteria including being an enrolled member of a Native American tribe or the spouse of a member.
New Markets Tax Credit – The New Markets Tax Credit was developed by the Department of Treasury to encourage investment in distressed or low-income communities. This tax credit is aimed at increasing non-residential investment in the development of retail space, offices, manufacturing, etc. Individuals and companies that qualify can get a tax credit of 39% on their original investment over the course of seven years.
Low-Income Housing Tax Credit – Affordability is a growing issue in the U.S. For that reason, the federal government offers real estate businesses a tax credit if they focus on low-income housing. To qualify for the Low-Income Housing Tax Credit (LIHTC) at least 40% of the rental development must be reserved for low-income housing. This tax credit is so lucrative it often helps developers raise equity for their projects.
Federal Historic Preservation Tax Incentive – If your real estate company is in the business of renovating existing properties you may want to find a few structures built before 1936. The State Historic Preservation Offices has established the Federal Historic Preservation Tax Incentive for private entities that rehab older, non-residential buildings. You can get a 10% tax credit for non-historic buildings built before 1936 and a 20% tax credit for structures that are “certified historic structures.”
These are just a sampling of federal tax credits that can be claimed no matter where your real estate business is located. There are many more state tax incentives that can be used to dramatically lower your tax rate. Before filing your taxes it’s also a good idea to visit the IRS real estate section make sure you claim every possible tax deduction as well.