This is a Listicle article designed to help investors and landlords maximize returns through practical and updated tax strategies for commercial real estate in 2025. We include IRS-compliant tips, key deductions, and real-world examples.
Why Tax Strategy Matters More Than Ever in 2025
With inflation, rising interest rates, and tighter lending markets, commercial property owners in 2025 must leverage every available tax advantage to preserve margins. Smart tax planning isn’t just for accountants—it’s now a strategic tool for building portfolio value.
According to NAR’s 2024 Commercial Real Estate Trends, property operating expenses rose by an average of 5.2% year-over-year, making tax efficiency more essential than ever.
1. Leverage Cost Segregation Studies
A cost segregation study can accelerate depreciation on components like lighting, flooring, or HVAC—allowing property owners to deduct more in the early years of ownership.
Even on mid-sized buildings, cost segregation may uncover hundreds of thousands in accelerated depreciation, especially after recent IRS guidelines expanded eligibility.
2. Utilize Bonus Depreciation Before It Phases Out
Thanks to the Tax Cuts and Jobs Act (TCJA), commercial property owners have had access to 100% bonus depreciation—but that benefit is reducing yearly. In 2025, the bonus drops to 40%, so now is the time to act.
Bonus depreciation can be combined with cost segregation to front-load deductions, improving cash flow.
3. Use 1031 Exchanges to Defer Capital Gains
A 1031 exchange allows investors to sell a property and reinvest the proceeds into another “like-kind” asset—deferring capital gains taxes. In high-appreciation markets, this is one of the most powerful tools to build long-term wealth.
Check out our guide to using 1031 exchanges in urban commercial real estate for detailed examples.
4. Deduct Qualified Improvement Property (QIP)
Qualified Improvement Property (QIP) refers to interior improvements made to nonresidential property. Since the CARES Act correction, QIP can be depreciated over 15 years, making it eligible for bonus depreciation.
This is especially useful for landlords upgrading office or retail interiors post-COVID.
5. Form a Real Estate Professional Status (REPS)
If you or your spouse qualify for Real Estate Professional Status (REPS), you can use rental losses to offset other forms of income—even W-2 wages. This requires logging at least 750 hours/year and materially participating in real estate activities.
Many high-income earners use REPS to reduce taxable income while growing their CRE portfolios.
6. Consider Energy-Efficiency Tax Credits
The Inflation Reduction Act of 2022 revived and expanded energy-related tax credits. Programs like the 179D Deduction allow deductions of up to $5 per square foot for buildings with qualifying energy systems.
According to ENERGY STAR for Commercial Buildings, commercial energy retrofits can increase NOI and property value while qualifying for federal and state incentives.
7. Don’t Overlook Passive Loss Limitations
Passive losses can be carried forward if they exceed passive income—but with planning, you can actively unlock those losses through grouping elections or REPS. Work with a tax advisor to avoid leaving these potential deductions unused.
Real-World Example: CRE Investor Maximizes Deductions in Texas
A Dallas-based retail investor used a cost segregation study and 179D deduction when retrofitting a 20,000 sq. ft. center in 2024. The result?
- $278,000 in bonus depreciation
- $80,000+ in 179D deductions
- Deferred gains via a 1031 exchange into an office-flex space
This layered approach saved over $150,000 in 2024 taxes alone and positioned the investor for additional credits in 2025.
