When asked about the tax impacts of owning an office condo, it usually depends on the specific circumstances of the case at hand. However, it is important to be aware that in many cases it is more advantageous over time to own, rather than lease, an office condo.
In a simplified case, the members of a company wish to purchase an office condo. To do this, they may create a new entity that will own that condo. The company, which becomes a tenant of the newly created entity, will pay rent that covers the operating cost and debt service of the unit. By doing this, over the course of time, the company will deduct rent expense, and the new entity will depreciate the office condo, generating current deductions at ordinary income tax rates.
In the meantime, assume that the office condo appreciates in value. When the condo is sold, tax will be assessed at two rates (depreciation recapture and capital gain), both of which are well below ordinary tax rates.
Owning an office condo will enable an owner to hold an asset that appreciates in value, while lowering the owner’s taxable income at the same time.