Real estate developers and builders should be aware of five key tax strategies that can improve cash flow, free up capital, and fund future projects.
Real estate developers and builders should be aware of five key tax strategies that can improve cash flow, free up capital, and fund future projects.
If you are in the real estate development or construction business, you already know your margins depend on more than just project costs and market demand. Smart tax planning can free up capital, improve cash flow, and even fund your next project. Here is a breakdown of five key tax strategies that every developer and builder should be aware of—what they are, who they help, and when to use them.
Tax planning in real estate is not just a year-end activity—it is an ongoing opportunity. With the right strategy, you can significantly increase your cash flow, reduce taxable income, and improve the ROI on every project. Whether you’re building, buying, or managing properties, these tax tools should be part of your game plan.
If you are not already exploring these strategies, now is the time to talk to a tax professional who knows real estate.
Stage
Applicable Strategies
Acquisition or
New Construction
Cost Segregation, 179D, 45L, Fixed Asset Review
Stabilization / Leasing
Ongoing Ownership
Renovations / Improvements
Sale or Disposition
Stage
Applicable Strategies
Acquisition or
New Construction
Cost Segregation, 179D, 45L, Fixed Asset Review
Stabilization / Leasing
45L, 179D, Property Tax Consulting
Ongoing Ownership
Property Tax Consulting, Fixed Asset Review, TPR
Renovations / Improvements
TPR, Cost Segregation, Fixed Asset Review
Sale or Disposition
Fixed Asset Cleanup, Cost Segregation Catch-up, Tax Planning for Gain​
What it is:
Cost segregation is a strategic tax tool that separates a building’s components into different asset classes for depreciation purposes. Instead of depreciating everything over the standard 27.5 or 39 years, items like carpet, cabinetry, electrical wiring, and parking lots can be depreciated over 5, 7, or 15 years.
Who benefits:
Anyone who builds, purchases, or renovates income-producing property—whether it is a retail center, multifamily community, office building, or industrial facility. Even properties acquired in past years may qualify retroactively—with no need to amend returns.
When to use it:
Ideally, right after construction or acquisition when the building is placed into service. But it can also be applied retroactively through a “lookback study,” allowing you to catch up on missed depreciation in the current tax year.
Why it matters:
Cost segregation can significantly reduce taxable income in the early years of a project, which boosts cash flow that can be reinvested.
What it is:
A federal tax credit of up to $5,000 per unit for builders and developers who construct energy-efficient homes or multifamily units that meet specific standards set by the Department of Energy.
Who benefits:
Residential developers of single-family homes, townhomes, and multifamily buildings (that are three stories or less prior to 2023; after 1/1/2023, taller properties may qualify). The properties must meet energy-saving requirements and be certified by a qualified third party.
When to claim it:
After construction is complete and the unit is sold or leased.
Why it matters:
If you are building 100 qualifying homes or apartments, that’s up to $500,000 in federal tax credits available.
What it is:
A deduction of up to $5.00 per square foot for commercial buildings or multifamily buildings (four stories or taller) that install qualifying energy-efficient systems (lighting, HVAC, or envelope).
Who benefits:
Building owners and designers—especially those working on government or nonprofit buildings (including schools and public housing), where the deduction can be allocated to the designer.
When to claim it:
After installation and certification. It’s best to consider this early during design and construction for maximum benefit.
Why it matters:
On a 100,000-square-foot building, that’s up to $500,000 in deductions.
What it is:
A comprehensive audit of your fixed asset ledger to ensure assets are properly categorized and depreciated. Many companies unknowingly carry outdated, fully depreciated, or misclassified assets on their books.
Who benefits:
Any real estate owner or operator who’s acquired, renovated, or built multiple properties over time.
When to do it:
When preparing for a sale, undergoing renovations, or cleaning up your financials. A fixed asset review is also helpful before engaging in cost segregation.
Why it matters:
This process can uncover deductions you’ve missed, dispose of ghost assets, and potentially unlock retroactive tax savings.
What it is:
IRS rules that determine whether an expense (like a roof repair or HVAC replacement) can be deducted immediately or must be capitalized and depreciated over time.
Who benefits:
All property owners—but especially those with frequent repairs, renovations, or tenant improvements.
When to apply it:
Whenever you’re spending money on maintaining or improving a property. These rules are applied on a case-by-case basis and can result in immediate deductions when interpreted correctly.
Why it matters:
Misclassifying expenses can delay deductions. But understanding the rules helps you take full advantage of write-offs in the year you spend the money.
What it is:
A detailed review of your property tax assessment to identify overvaluations. Consultants work to reduce your assessed value by challenging incorrect assumptions, outdated data, or changes in market conditions.
Who benefits:
Owners of commercial and industrial properties with high property tax burdens. Newly constructed or renovated buildings are often over-assessed due to aggressive valuations by taxing authorities.
When to use it:
Annually. Assessments should be reviewed every year, especially after new construction, renovations, or acquisitions.
Why it matters:
Reducing your property taxes by even a few percent can translate to tens or hundreds of thousands in savings per year.
What it is:
The ITC allows property owners or developers to claim a percentage of the cost of eligible renewable energy installations—like solar panels, battery storage, geothermal, and fuel cells—as a federal tax credit. The credit currently starts at 30% and can increase with adders (e.g., U.S.-made materials, low-income areas, energy communities).
Who benefits:
Developers who incorporate qualifying renewable energy systems into commercial, multifamily, or mixed-use developments. ITC is ideal for owners who use the energy on-site (reducing utility bills) or who lease the system.
When to use it:
At the time the system is placed in service. Planning for the ITC should happen during design and procurement to ensure eligibility.
Why it matters:
Incentives can cover up to 50%+ of system costs when combined with state and local programs, reducing payback periods and boosting long-term ROI.
What it is:
The PTC provides a per-kilowatt-hour credit for energy generated from qualifying renewable sources such as wind, solar, biomass, and hydropower. While typically used for utility-scale or energy-focused projects, some real estate developers invest in or co-develop such projects for long-term passive income or ESG alignment.
Who benefits:
Developers or investors involved in larger energy-producing projects—or those partnering with renewable energy companies.
When to use it:
After the facility begins producing electricity. Like the ITC, upfront planning is critical.
Why it matters:
Over time, the PTC can deliver more total value than the ITC, especially for projects with high energy output. It can also be transferred or sold in today’s market under updated tax credit transferability rules.
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What it is:
Cost segregation is a strategic tax tool that separates a building’s components into different asset classes for depreciation purposes. Instead of depreciating everything over the standard 27.5 or 39 years, items like carpet, cabinetry, electrical wiring, and parking lots can be depreciated over 5, 7, or 15 years.
Who benefits:
Anyone who builds, purchases, or renovates income-producing property—whether it is a retail center, multifamily community, office building, or industrial facility. Even properties acquired in past years may qualify retroactively—with no need to amend returns.
When to use it:
Ideally, right after construction or acquisition when the building is placed into service. But it can also be applied retroactively through a “lookback study,” allowing you to catch up on missed depreciation in the current tax year.
Why it matters:
Cost segregation can significantly reduce taxable income in the early years of a project, which boosts cash flow that can be reinvested.
What it is:
A federal tax credit of up to $5,000 per unit for builders and developers who construct energy-efficient homes or multifamily units that meet specific standards set by the Department of Energy.
Who benefits:
Residential developers of single-family homes, townhomes, and multifamily buildings (that are three stories or less prior to 2023; after 1/1/2023, taller properties may qualify). The properties must meet energy-saving requirements and be certified by a qualified third party.
When to claim it:
After construction is complete and the unit is sold or leased.
Why it matters:
If you are building 100 qualifying homes or apartments, that’s up to $500,000 in federal tax credits available.
What it is:
A deduction of up to $5.00 per square foot for commercial buildings or multifamily buildings (four stories or taller) that install qualifying energy-efficient systems (lighting, HVAC, or envelope).
Who benefits:
Building owners and designers—especially those working on government or nonprofit buildings (including schools and public housing), where the deduction can be allocated to the designer.
When to claim it:
After installation and certification. It’s best to consider this early during design and construction for maximum benefit.
Why it matters:
On a 100,000-square-foot building, that’s up to $500,000 in deductions.
What it is:
A comprehensive audit of your fixed asset ledger to ensure assets are properly categorized and depreciated. Many companies unknowingly carry outdated, fully depreciated, or misclassified assets on their books.
Who benefits:
Any real estate owner or operator who’s acquired, renovated, or built multiple properties over time.
When to do it:
When preparing for a sale, undergoing renovations, or cleaning up your financials. A fixed asset review is also helpful before engaging in cost segregation.
Why it matters:
This process can uncover deductions you’ve missed, dispose of ghost assets, and potentially unlock retroactive tax savings.
What it is:
IRS rules that determine whether an expense (like a roof repair or HVAC replacement) can be deducted immediately or must be capitalized and depreciated over time.
Who benefits:
All property owners—but especially those with frequent repairs, renovations, or tenant improvements.
When to apply it:
Whenever you’re spending money on maintaining or improving a property. These rules are applied on a case-by-case basis and can result in immediate deductions when interpreted correctly.
Why it matters:
Misclassifying expenses can delay deductions. But understanding the rules helps you take full advantage of write-offs in the year you spend the money.
What it is:
A detailed review of your property tax assessment to identify overvaluations. Consultants work to reduce your assessed value by challenging incorrect assumptions, outdated data, or changes in market conditions.
Who benefits:
Owners of commercial and industrial properties with high property tax burdens. Newly constructed or renovated buildings are often over-assessed due to aggressive valuations by taxing authorities.
When to use it:
Annually. Assessments should be reviewed every year, especially after new construction, renovations, or acquisitions.
Why it matters:
Reducing your property taxes by even a few percent can translate to tens or hundreds of thousands in savings per year.
What it is:
The ITC allows property owners or developers to claim a percentage of the cost of eligible renewable energy installations—like solar panels, battery storage, geothermal, and fuel cells—as a federal tax credit. The credit currently starts at 30% and can increase with adders (e.g., U.S.-made materials, low-income areas, energy communities).
Who benefits:
Developers who incorporate qualifying renewable energy systems into commercial, multifamily, or mixed-use developments. ITC is ideal for owners who use the energy on-site (reducing utility bills) or who lease the system.
When to use it:
At the time the system is placed in service. Planning for the ITC should happen during design and procurement to ensure eligibility.
Why it matters:
Incentives can cover up to 50%+ of system costs when combined with state and local programs, reducing payback periods and boosting long-term ROI.
What it is:
The PTC provides a per-kilowatt-hour credit for energy generated from qualifying renewable sources such as wind, solar, biomass, and hydropower. While typically used for utility-scale or energy-focused projects, some real estate developers invest in or co-develop such projects for long-term passive income or ESG alignment.
Who benefits:
Developers or investors involved in larger energy-producing projects—or those partnering with renewable energy companies.
When to use it:
After the facility begins producing electricity. Like the ITC, upfront planning is critical.
Why it matters:
Over time, the PTC can deliver more total value than the ITC, especially for projects with high energy output. It can also be transferred or sold in today’s market under updated tax credit transferability rules.
Embrace the power of tax credit savings with Source Advisors and propel your business towards growth and success. Partner with us today to unlock your company’s full potential.
