Rising local taxes and interest rates, along with falling occupancy rates, have created challenges for companies engaged in the Portland commercial real estate market. When it comes to success in 2024, there are some key considerations to keep in mind.
1. Develop a strategy that allows you to meet your tax obligations but still achieve your goals.
- Normalize your tax burden year-over-year to avoid extremes from one year to the next. Minimize large swings in income and loss by spreading expenditures over certain tax years.
- If you have depreciable property, try to accelerate deductions to today. A cost segregation study will help identify which components are eligible for faster depreciation.
- Determine if the real property trade or business exemption applies to you and if it can help with your tax liability.
2. Determine the optimal way to structure your business to absorb tax costs.
Consider structuring your business as a Pass-Through Entity (PTE) instead of a sole proprietorship or single-member LLC. With this business structure in place, you can take advantage of the Pass-Through Entity Elective Tax (PEET), which allows state and local taxes (SALT) to be paid at the entity level, rather than the individual level.
Taxpayers can thus bypass the cap that limits federal deductions on state and local taxes to $10,000. In Oregon, PEET results in a 4% net deduction on your personal income tax if you’re at the top tax rates.
3. Plan carefully so you can succeed in the Oregon + Portland tax landscape.
Commercial real estate and development companies face a long list of taxes that impact the cost of doing business in the Portland area:
- 9.9%: State income tax
- 0.57%: Corporate Activity Tax for businesses with gross receipts over $1 million
- 2%: Multnomah County Business Income Tax
- 2.6%: City of Portland Business License Tax
- $65 per unit: Portland Residential Rental Registration fee
- 1%: Metro Supportive Housing Services Tax
- 3%: Multnomah County Preschool for All Tax
The challenge is knowing how and when these taxes apply—and how to minimize your tax liability. For example:
- If you do business both inside and outside the Portland and Multnomah County area, do you know how much of your revenues are subject to the different tax jurisdictions? A tax advisor who understands your business can help you group these activities to your best tax advantage.
- Consider alternative geographies, such as Washington, Clackamas, and Clark counties, or further down the valley. If you are looking for stability and/or lower tax burdens, these markets may be more competitive for you. However, Portland and Multnomah County might carry a higher upside in the long term.
4. Take advantage of real estate deals.
Dropping property values can offer excellent economic opportunities along the urban core. A building selling at 60 cents on the dollar can be a significant bargain—if you have equity financing. To take advantage of these deals, you will need to have cash on hand.
Portland holds a distinct position in the market, presenting opportunities for revitalization. As the community and city leadership navigate and solve various urban challenges, the city is poised to regain its vibrancy and reclaim itself as a live-work-play destination. Recognizing the cyclic nature of markets, there is inherent value in the city, and strategic investments have the potential to yield significant returns for discerning investors over time.
Plan Your 2024 Strategy with Aldrich
While commercial real estate companies are facing a challenging environment, there are clear opportunities for growth. These short-term strategies can help you remain competitive and position you for long-term success. If you’re ready to plan now for success in 2024, let’s talk.
Meet the Author
Partner - Real Estate
Jonathan McGuire, CPA
Aldrich CPAs + Advisors LLP
Jonathan McGuire has over ten years of experience providing strategic tax planning and compliance expertise to private middle-market clients. He has a deep focus as a real estate accountant, working with investors, developers, realtors, property managers, and other professional service providers in real estate. He works with a wide range of property types ranging from... Read more Jonathan McGuire, CPA
- Real estate
- Partnership taxation
- Tax planning and compliance
- Certified Public Accountant
- Repair regulations
- Qualified Opportunity Zones
- Qualified Opportunity Funds