If you own any property that makes money, you are legally required to pay commercial property tax on it. Commercial property tax doesn’t have to be complicated, but it is different from residential property tax. There are several different types of commercial property tax to be aware of. If you own commercial property, make sure you understand the taxes you owe so you don’t get in trouble with the IRS.

Property Tax

This is the simplest form of tax on commercial property. In essence, this type of tax is the same as residential property tax, so most people already know how it works. This tax is paid to the county government.

Local Income Tax

In addition to standard property tax, many cities, and even some counties charge income tax on commercial properties. This tax is paid specifically on profit. This is confusing because of the name, but the owner of the commercial property can actually subtract most expenses from the income before calculating the taxes on it. Remember, if you rent out your commercial property, you don’t have to pay taxes on the security deposit because it will be returned to the renter at the end of the contract. You can also subtract the cost of maintenance and repairs from the total income as expenses.

State Income Tax

Many states also charge income tax on commercial properties. When you purchase a property you intend to use for profit, you should check your state tax laws. State income tax generally works about the same as local income tax. You can usually deduct expenses from income before calculating taxes to be paid.

Federal Income Tax

The United States always gets their cut, and this is no exception. Commercial property tax goes to the federal government just like local and state governments. The value of your property is typically determined by local officials, but the property owner is allowed to dispute the final estimation. Property owners may also make a declaration of value, referred to as a rendition, to the taxing authority who can choose to accept or reject that value.

If you are a commercial property owner, you owe tax on what you own. Make sure you know the laws wherever you are. Don’t forget to include what you owe in taxes when you calculate expenses for the building, and don’t forget to pay them at the end of the year! If you aren’t sure about the taxes on your commercial property, or if you have any other real estate questions, contact us. We’d love to help you out with whatever you need.