Your Guide to Commercial Real Estate Tax

For a business, paying commercial real estate taxes is just another part of running your company. If you recently purchased commercial real estate, it can be overwhelming to figure out what to do. Here is an overview of commercial real estate taxes in the United States.

What Counts as Commercial Property

Commercial real estate taxes impact property that was purchased for commercial purposes and is used to generate revenue. This applies to many different types of buildings outside of what most people suspect. Commercial property includes office buildings, condominiums, factories, apartment buildings, and farms. If you own and reside in a home on a large property that you lease for farming, the portion you lease for farming would be considered commercial property that you earn money from.

Higher Taxation Rates

While the amount you’ll pay in commercial real estate taxes will vary depending on where the property is located and what it’s used for, commercial real estate taxes are typically higher than residential property taxes. This is, in part, because commercial property is intended to generate income. Also, since there are fewer commercial properties relative to residential properties, there are often lower residential property taxes to encourage more sales.

Commercial Real Estates Valuation

The amount you owe in commercial real estate taxes are based on how much money you could make if you made the most possible and not how much your business actually made. The higher income capacity is used relative to actual income to assess how much money is owed. Unfortunately, how much money an assessor feels that a commercial property can make is somewhat subjective. If a commercial real estate assessor gives a higher figure than the property owner feels the property is worth, sometimes this can cause owners to feel that they are being overassessed and forced to pay more than they should.

Income and Expense Forms

During the assessment process, commercial property owners will likely be required to fill out an income and expense form for each of their properties. Owners will need to detail how much the property makes, if there have been improvements made to the property since the last inspection, and what expenses have been incurred over the regular course of business. Allowable business expenses include advertising and legal fees, utility bills, payroll, building maintenance, and other management expenses.

Different Types of Commercial Real Estate Tax

All commercial real estate owners in the United States must pay commercial real estate tax to the federal government. Depending on where the commercial property is located, the commercial property owner may also be required to pay state income taxes and local taxes. For state income tax, you only pay taxes based on your profit after expenses. For city and county taxes, how you’ll pay commercial property taxes will vary.

The Value of Working with a Commercial Agent

Many commercial property owners find that working with a highly trained commercial agent can have a big impact on how their property is valued and how much they owe in real estate taxes. A commercial agent can give you a good idea of what a fair assessment will look like for your property, make appropriate appraisal preparations, and help you file tax appeals, if needed. This can make it easier to navigate the ins and outs of commercial real estate taxes.

As you can see, commercial real estate taxes need not be complicated. Just make sure that if you lease the property, you include these amounts in your rental figures. If you need additional assistance, an accountant or property management firm specializing in commercial real estate can help. For full service commercial real estate services, contact Lee & Associates, at (973) 337-1144. We can help you put together the right team of cross-functional experts to support your growing businesses.