What are property taxes for business?
Business property taxes apply to the assessed worth of the land or buildings your company owns. Property type and location play a pivotal role in determining how much tax you’ll pay, and each state and local jurisdiction can calculate the amount differently.
The Tax Foundation’s 2024 State Business Tax Climate Index highlights New Mexico, Idaho, Indiana, and Nevada as favorable tax locations. Vermont, New York, Connecticut, and the District of Columbia are the least favorable.
If you own commercial property, these annual charges substantially influence cash flow and economic planning. Strategically writing off property taxes for business can be a fiscal tool that can potentially reduce your company’s taxable income — lowering your tax burden to the IRS.
Eligibility for writing off property taxes for business
Not all business property owners are eligible for tax benefits. However, commercial landlords, small business proprietors, and self-employed workers who own property directly related to their business operations can qualify.
For instance, a landlord with rental units can claim mortgage interest, property taxes, operating expenses, depreciation, and repairs on their buildings and property, according to the IRS. A business owner or an entrepreneur with office space is also eligible for this deduction.
If you run your business from your home, a portion of home real estate taxes qualify if you use part of it exclusively and regularly for business.
Benefits and risks of property tax write-offs
Taking a deduction on tax for property ownership can influence the financial health of your business.
Benefits of real estate tax deductions
- Reduces overall tax obligations.
- Frees up resources for operational expenses.
- Enhances budgeting and financial forecasting.
Risks of real estate tax deductions
- Errors due to not following tax laws.
- Potential audits and penalties for miscalculations.
- Challenges interpreting and staying current with tax laws.
Which expenses can be written off for business property tax?
The IRS allows property tax deductions but sets specific criteria. Generally, you can only deduct taxes in the year you pay them, according to IRS Publication 535 on business expenses. Remember, tax regulations vary by state, so consulting local tax authorities can get you the most accurate information.
Qualifying expenses
Allowable expenses generally include basic property taxes levied by federal, state, and local governments. The IRS also permits deductions for certain local benefit taxes if they’re specifically for maintenance, repairs, or interest related to public services. Carefully review your tax bill to identify these deductible elements and unlock potential savings.
Other opportunities for real estate income reductions might include expenses for managing and maintaining business property, foreign taxes, and specific environmental charges, provided they align with IRS rules.
Non-deductible expenses
The IRS also states that charges for local benefits that could increase the value of your business property, such as streets and sewer assessments, are non-deductible. Nor are foreign real estate taxes — unless they’re tied to business or income-generation.
Note that the IRS limits how much you can deduct for state and local property levies. While service charges like water bills aren’t deductible as property taxes, they may qualify as business expense write-offs.
Learn more about non-deductible expenses for small businesses.
How to write off property taxes for commercial real estate
Claiming your property tax deductions requires attention to detail and familiarity with small business tax regulations. To help you navigate this task:
- Confirm that your property qualifies for a tax deduction.
- Gather statements and receipts to document the amounts and dates of payments.
- Determine the deductible portion of each expense according to IRS limits.
- Complete the tax forms.
- File your taxes on time and include the proper forms.
If you’re unsure about any part of the process, consult a tax professional. Accountants or tax advisors are well-versed in current regulations and can offer valuable insights — especially for complex situations.
How NEXT supports landlords and small business owners
Risk management is just as important as tax knowledge for landlords and entrepreneurs. NEXT offers small business insurance tailored to your unique needs.
If you oversee commercial property, run a retail store, or manage a restaurant, insurance coverage can be essential. Get a quote, secure coverage and get a certificate of insurance in under 10 minutes. Access your policy via web or app 24/7.
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