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How Property Management Can Reduce Tax Bills

How Property Management Can Reduce Tax Bills

One of the most rewarding transactions, I ever worked on was honestly one of the smallest. But it proved to be a major win-win for everyone involved.

I can literally see the eye’s rolling and bullpoop meeters exploding at this point. And I know — if this was Good Eats then there would be some flash-back to the number of times I’ve told clients that the “win-win” is like a participation trophy — looks good and sounds good but really means nothing.

Okay, so why is this not bull? Well lets start from the beginning.

The Players

non profit renting office space
You get a tax break, while a non-profit enhances its appeal in your property. That is a win-win in my world. [Toby Boyce]
  • Non-Profit Organization. Group had a great location but building was sold and lease wasn’t renewed. So we had to find them a new home … and fast.
  • Building Owner. Ran into a business owner – actually another real estate company – that had extra space at a prime location in greater Columbus area.
  • Tenant Representative. In this case, C.G. Boyce Real Estate Co. made the connection between the tenant and landlord and stepped out of the discussion. Had the landlord not been a real estate company, we’d have stayed in to provide additional support and assistance.

That’s great Toby, but let’s get to the win-win …

The Win-Win

This building rents in the $12 – $15 per square foot range but the non-profits budget was closer to say $5 a foot. So it doesn’t take a very experienced negotiator to realize that this is a very challenging deal for anyone.

Now this is the section where I remind everyone that I am not a tax accountant and have not played one on TV. For your particular situation contact your tax professional – and if you don’t have one then I’d suggest checking out our list of recommended accountants.

At this point, let’s assume that the landlord has several leases at $15 per square foot in the building. That’s important because it provides proof that this is a viable lease rate if the IRS were to audit the books. Prepare a lease at $15 per square foot and in the lease the landlord agrees to donate $10 per square foot to the charity each month. Bam. Now we have a $15 lease for the landlord and a $5 lease for the charity.

This sounds more like a win-lose situation right now Toby …

Why Would “I” Do This Deal?

Win vs. Lose. So you don’t make as much money, does that automatically equate to a loss? But what if that loss actually becomes a way to reduce your tax liability? Now is it a loss? I don’t know about you but when I find ways to – legally – pay Uncle Sam less it is a win.

  • Landlord. Taxes suck and we all find ways to limit the amount we have to pay Uncle Sam. Well in this scenario, the landlord shows $5 per month income and gets a $10 per month tax deduction. Obviously, the landlord has to be in a situation where they don’t “need” the $10 per foot to keep the business solvent. But for others it can be a great way to reduce your overall income and build some great community good will working with local 501-C non-profit organizations.
  • Tenant. This is a no-brainer for them. They get a $15 address for $5 and depending on how the lease is structured can show an increase in donations to the organization which can help in grant funding.

So is this a no-brainer?

And I remind you again, I am NOT an accountant – find a list of those that are – and you need professional assistance for your particular situation.

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