© 2024 Real Estate Consultants of Colorado, LLC
Austin, TX
Had a good year but singing the tax bill blues? For the last several years, there has been a solution but its best perks end on December 31st. The Tax Cuts and Jobs Act of 2017 allows you to depreciate 100% of the value of a car wash or gas station in your first year of ownership. This applies to both investments and owner-operator real estate meaning that you could buy a car wash building and run the business yourself or you could buy a car wash building leased to a national credit tenant on an absolute NNN basis and simply collect the rent and sell the asset the following year. The potential result is millions of dollars of depreciation benefit to you in just one year. If the property is under construction and in a Qualified Opportunity Zone, this benefit is permanent. To qualify, more than half of the revenue on the property must come from car wash or gas station sales, so oftentimes, these must be single-tenant properties to qualify. The accelerated depreciation steps down to 80% in 2023.
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What if the gas station tenant is paying rent but has closed its operations? That won't qualify. Can I finance the acquisition like I would any other commercial real estate deal? Yes but these asset types may require a lower loan-to-value ratio. What if the car wash is being built now and will open in November? That qualifies for the 2022 accelerated depreciation. Can I buy more than one? Yes. Are there any other asset types that qualify for 100% bonus depreciation? Mobile home parks also qualify but the benefit will probably be lower given the allocation of land compared with improvements.
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As you can imagine, this incentive has dramatically altered demand for these asset types and we have seen certain cap rate compression over the past years. However, as interest rates continue to rise and the sun sets on the best of the depreciation incentive this year, we expect to see rising motivation from sellers and price reductions accordingly. Don't hesitate to contact us so that we can introduce you to a CPA who can explain all of the rules. As always, we stand by to be a resource for your commercial real estate acquisition goals.
Had a good year but singing the tax bill blues? For the last several years, there has been a solution but its best perks end on December 31st. The Tax Cuts and Jobs Act of 2017 allows you to depreciate 100% of the value of a car wash or gas station in your first year of ownership. This applies to both investments and owner-operator real estate meaning that you could buy a car wash building and run the business yourself or you could buy a car wash building leased to a national credit tenant on an absolute NNN basis and simply collect the rent and sell the asset the following year. The potential result is millions of dollars of depreciation benefit to you in just one year. If the property is under construction and in a Qualified Opportunity Zone, this benefit is permanent. To qualify, more than half of the revenue on the property must come from car wash or gas station sales, so oftentimes, these must be single-tenant properties to qualify. The accelerated depreciation steps down to 80% in 2023.
What if the gas station tenant is paying rent but has closed its operations? That won't qualify. Can I finance the acquisition like I would any other commercial real estate deal? Yes but these asset types may require a lower loan-to-value ratio. What if the car wash is being built now and will open in November? That qualifies for the 2022 accelerated depreciation. Can I buy more than one? Yes. Are there any other asset types that qualify for 100% bonus depreciation? Mobile home parks also qualify but the benefit will probably be lower given the allocation of land compared with improvements.
As you can imagine, this incentive has dramatically altered demand for these asset types and we have seen certain cap rate compression over the past years. However, as interest rates continue to rise and the sun sets on the best of the depreciation incentive this year, we expect to see rising motivation from sellers and price reductions accordingly. Don't hesitate to contact us so that we can introduce you to a CPA who can explain all of the rules. As always, we stand by to be a resource for your commercial real estate acquisition goals.
© 2019 Real Estate Consultants of Colorado, LLC