Commercial Real Estate Myths EXPOSED #5: Tax Benefits Are NOT Overrated (Here's Why Rich People Choose CRE)

  📍 Tax benefits for commercial real estate are overrated. This is hands down, the most ridiculous myth. Let’s bust it!

Hey everybody. Joseph Gozlan with Eureka Business Group, Your Retail Navigator for the Dallas Fort Worth market.

And today we’re gonna bust the most ridiculous myth I’ve ever heard about commercial real estate. And that is that the tax benefits are overrated. To bust the myth,

first, let’s understand how taxes work in the US. The IRS has two buckets. You have your ordinary income bucket and you have your capital gain bucket. Your ordinary income is where your salary, your W2, your business income goes into. That’s your ordinary bucket, and most higher earners are falling into almost 40% in that bucket.

The second bucket is your capital gain bucket. This is where the IRS puts all your passive investments, whether it’s a stock portfolio that pays dividends or when you sell a stock, whether it’s your real estate, residential, or commercial, they all fall into this bucket.

So we have two separate buckets. Now let’s talk about that capital gain bucket and see where it is. So first of all, we’re talking about 15 to 20% tax in most cases, for most people, if you are at the super high earners, it might be a little bit more than 20%, but most people are gonna fall in the 15 to 20% range.

So when you sell a stock, you have to pay capital gain tax. When you sell a real estate, you’re gonna have to pay capital gain tax, which is what you paid for it compared to what you sold it for. If there was a profit over there, there’s gonna be a capital gain to be paid.

Now that we understand that, let’s talk about the differences.

If I have a stock portfolio, let’s say you bought an Apple stock 15, 20 years ago when it was $20 a share, and now it’s $200 a share. On paper, you made a lot of money, but in reality, you haven’t got a dime. You cannot take that potential profit and buy with it at the grocery store. You cannot take that potential profit and buy other properties or other stocks.

It is locked inside that stock. In order to realize that gain, what you have to do is you have to sell that stock. And when you sell that stock, two very bad things happen. One, you no longer have an asset. You have to sell your asset in order to realize your gain. And if you look around, there’s no more Apple stocks for $20.

So that’s one thing that we don’t like about stocks, is that in order to realize ’em, again, I have to sell them. The other thing that happens is immediately after I sell that stock in the same year, the government is gonna ask for their piece. They’re gonna ask for their 15 to 20% capital gain tax in the same year.

Now let’s compare that conversation to commercial real estate. If I own commercial real estate for 20 years and I bought it, let’s say I bought a property for a $200K 20 years ago and now it’s worth a million dollars. All my mortgage is already paid off and I have a million dollar property debt free. So what I can do is I can go to the bank and say, Hey, my property is worth a million dollars. I don’t have any debt on it. I wanna take a mortgage. Not too much, let’s just say half a million dollars, 50% of the property value. The bank is obviously gonna give it to me, and now I’m gonna take half a million dollars.

Guess what? That half a million dollars is tax free. It is not a taxable event because all I did was take a loan. Loans are not taxable. So I can realize my gain from the commercial real estate without creating a taxable event, and the biggest bonus of this thing is I still own the asset.

I did not lose the asset. It’s still the same property that I bought at a fraction of its value today, 20 years ago. I still own that asset. So here’s benefit number one. Here’s where the taxes difference is. Pay capital gain because I sold the stock or just refi pull money out. Non-taxable.

The next benefit we can talk about with taxes is depreciation.

Any real estate property is allowed to take depreciation as a tax deduction in every year. In the residential world, it’s very standard to do linear depreciation, which means you take the property value less the value of the land, so just the improvement, and then cut it into 27 and a half different pieces, and that is how much you can take in depreciation every year.

For example, if I bought a house for $130,000, let’s say $30,000 is the land component, a hundred is the improvement. I’m gonna divide that by 27 and a half. That means every year I can deduct $3,600 in some change from my taxes for the fact that I did a linear depreciation.

Okay? In commercial real estate, we can apply advanced strategy for depreciation like cost segregation or the 179D and or the new qualifying manufacturing that came with the big, beautiful bill in 2025. So we can do a lot of different things to accelerate the depreciation.

I cannot depreciate it more than what I paid for, but I can use a bigger portion of that depreciation in the first few years than deferring it over 27 and a half years.

The big, beautiful bill that was signed into law in 2025 is also bringing back 100% bonus depreciation. And this is basically like pouring gasoline on the fire. Just helps me with my cost segregation, allowing me to claim. A lot more of my tax benefits in the first few years. Here’s another beautiful thing about that passive bucket that we’re talking about, the capital gains bucket, and that is losses in that bucket can be rolled over in future years.

So if I bought a commercial real estate building this year, and the amount of depreciation that I was able to claim through cost segregation, potential depreciation and so on exceeds the amount that I need to claim in order to offset my income. I can roll it over to the next year to help me with next year’s income and the next year and the next year until it runs out.

And guess what? When it runs out, what do we do? We just buy another commercial real estate property, accelerate the depreciation on that, use it to offset both properties and so on. So the magic of depreciation and cost segregation allows me to basically. Not pay taxes legally for the first few years of the property because the paper losses, the depreciation that I claim in an accelerated way offsets more than the income that comes from the property.

So that was the second benefit that comes from owning commercial real estate. Let’s talk about number three. So let’s say I bought that Apple stock 20 years ago. It was $20. Today it’s $200 and I wanna sell that stock and I wanna buy Nvidia ’cause Nvidia is the future AI and so on. I wanna do that.

What happens? I have to sell my $200 stock and then I have to pay my taxes and then let’s say 20% for example, so I can only take 80% of what I’ve. Had in order to invest in my next property, but in commercial real estate, I can do a 1031. 1031 exchange is basically saying I’m gonna sell a property, but because I’m gonna buy something similar, a like kind exchange, I’m gonna buy another investment property.

I want to defer paying the capital gain tax to when I sell the next property. So basically I sold it for a million dollars. I get the entire million dollars, and I can buy a property that is worth a million or more in my next transaction without paying the capital gain tax. Today, I get to defer it, and that is.

Again, multiplying my ability to grow the family wealth, but also it allows me to defer that pain of the taxes forward year after year, property after property. And then what’s written in the laws today is that if I die while owning a property that was a 1031 deferred. My inheritance, my estate, my kids are gonna get a step up in cost basis and all that.

Deferred capital gain tax basically disappears. so all the things we’ve discussed so far are not individual tax benefits, they are stackable tax benefits. So I start with being in my passive income bucket. Then I add on top of it the depreciation that takes away all of those tax liabilities that I have making basically my income tax free for the next few years.

And so on. And then I add another layer on top of it, which allows me to 1031 over the years into bigger properties, better properties, and so on. And then on top of it, I stack again, all the tax benefits that I get from being able to expense all the maintenance to the properties expense, all the fees that I paid to the property management or the leasing commissions, and so on.

So when you stack all those things together, it makes commercial real estate one of the most tax efficient investment vehicles out there. And that’s why the richest people in the world, their preferred investment vehicle is commercial real estate.

Another thing that is not tax related, but I think I should mention it that ’cause it comes into the stack of the benefits of commercial real estate is that when I have a mortgage, I have somebody else pay the mortgage, my tenants pay the equity pay down while my property appreciates.

And that is just one of those bricks in that tower that commercial real estate creates for an investor and. It’s really more about what I get to keep than what I earn. If I get to keep more, I get to use more money into my next venture. I can use more money to build my wealth and accelerate, and that’s where compounding all those benefits really makes commercial real estate an amazing investment vehicle.

As you can imagine, I’m pretty biased, but as your Dallas Fort Worth Retail Navigator, I’m here to help you. If you are investing in commercial real estate or you’re just thinking about diversifying from your stock portfolio into a commercial real estate investment, give me a call, shoot us a message, and if you wanna see all the seven myth series, we’ll have a link in the description below and also a link to our website when you can download A PDF that describes all those seven myths that we are busting with this series. I am Joseph Gozlan with Eureka Business Group, Your Retail Navigator for the Dallas Fort Worth market. Until the next video, you have a wonderful week.