Property taxation can be a substantial operational cost for commercial real estate owners and investors, yet through strategic implementation, it can be managed while remaining compliant with local tax laws. In this article, we will look at strategies and best practices for minimizing property taxation in commercial real estate investments.
Understanding Property Taxation
Property taxation, commonly referred to as real estate or property tax, is a local tax levied on real property located within municipal boundaries for public services, schools, infrastructure needs, and other community requirements. The amount owed is typically determined by assessing its value and applying a tax rate.
Strategies to Minimise Property Taxes
- Contest Property Assessments: One effective strategy for lowering property taxes is challenging the assessed value. Assessments can often be inaccurate and discrepancies can lead to higher tax bills. Consulting a qualified appraiser on this valuation process could provide grounds for appealing successfully.
- Monitor and Verify Assessment Records: Frequently review your property assessment records to make sure all the data is correct since errors in property descriptions or square footage calculations could lead to overvaluation and higher taxes.
- Increase Energy Efficiency: Certain jurisdictions offer property tax incentives for energy-efficient improvements. By upgrading your commercial property with features like LED lighting, HVAC systems, or solar panels — which may qualify for tax deductions or credits — you may qualify for potential property tax savings.
- Explore Abatements and Exemptions: Ascertain if your property qualifies for tax abatements or exemptions; some jurisdictions offer these breaks in exchange for specific uses such as historic preservation or affordable housing.
- Investigate Tax Credits: Investigate available rehabilitation or brownfield redevelopment tax credits that might apply to your commercial real estate project and research them thoroughly in order to significantly lower property tax liabilities. These credits could help reduce property tax obligations significantly.
- Investigate Tax Incentive Programs: Many local governments offer incentive programs to spur development in certain areas. Such incentives could include tax increment financing (TIF) districts or special taxing districts that offer reduced property tax rates for an agreed-upon period.
- Monitor Property Changes: Keeping track of changes to your property such as vacancies, renovations, and demolitions as these can have an effect on its assessed value. Promptly report any change to the local tax authority.
- Appeal Tax Assessments: If your property has been unfairly assessed, consider appealing its assessment by providing evidence, hiring legal representation, and participating in tax appeal hearings.
- Lobby for Legislation Changes: Partner with local government officials and industry organizations to lobby for changes to property tax laws or policies that can benefit commercial real estate owners and investors.
Property taxation can be an insurmountable burden for commercial real estate owners, yet its costs can be altered with proper strategies to mitigate their burden. Staying informed on local tax regulations, accurately evaluating your property, and taking advantage of incentives or exemptions are all key components to successfully reducing property tax expenses while remaining compliant with regulations. Commercial property law can be complex, if you need further advice on property law do not hesitate to contact a commercial property solicitor.