The most common "hurdle" we hear is the financing and how to go about this.  Fortunately, the SBA has a GREAT program designed for business owners looking to purchase real estate with as little as 10% down!

SBA 504 Loan to Acquire Business RE

• The SBA 504 Loan is specifically designed for the purchase of fixed assets, which usually means real estate and equipment. It's an excellent choice for businesses looking to buy, build, or renovate commercial real estate.
• A down payment by the borrower, usually around 10% of the project cost.
• Long-Term Financing: The loan offers long-term fixed-rate financing, usually with terms of 10, 20, or 25 years, which helps in managing cash flow.
• Low Interest Rates: The interest rates are often lower than conventional loans because the SBA guarantees a portion of the loan, reducing the lender's risk.
• The borrower must have a tangible net worth of less than $15 million and an average net income of less than $5 million after federal income taxes for the preceding two years.
• The real estate must be at least 51% owner-occupied if purchasing an existing building or 60% owner-occupied if constructing a new building.

Often time business owners are considered passive real estate investors since they are not able to achieve the real estate professional status.  However, there is a little known Election we can make to treat your business real estate purchase as NONpassive, meaning we can offset your business income with the Cost Segregation and Bonus Depreciation techniques!

The Grouping Election

• The grouping election allows taxpayers to treat multiple activities as a single activity for the purpose of determining whether they materially participate.
• By grouping rental real estate with a business in which the taxpayer materially participates, the combined activity might meet the material participation criteria, thereby converting passive losses into active losses.
• This can lead to additional depreciation deductions and other tax benefits, as losses from the grouped activities can offset other active income.
  
  

Will you qualify?

• To qualify, the activities must constitute an appropriate economic unit.
• The IRS factors considered include the similarities and differences in types of trades or businesses, the extent of common control, the extent of common ownership, geographical location, and interdependencies between the activities.
• Ensure that THE SAME OWNERS own both the business and the real estate or this strategy will not work. 

If you are interested in buying business real estate, it is important to consider both the attractive financing options AND the ability to convert the activity to nonpassive, therefore allowing you to use our real estate techniques to offset a portion of your active business income!

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