SBA 504 loans have become a cornerstone financing option for small businesses looking to purchase commercial real estate.

These loans help small businesses finance commercial property with low down payments and fixed rates, making ownership more accessible.

Alabama Small Business Capital (ASBC), a Certified Development Company, has supported over $14 billion in projects since 1989, creating 76,000 jobs.

Beyond the favorable financing terms, commercial property ownership through these loans offers significant tax advantages that can substantially improve your business's bottom line.

How SBA 504 Loans Work

The typical SBA 504 loan structure involves three parts:

• 50% from a bank or credit union (first lien)
• 40% from a CDC/SBA (second lien)
• 10% down payment from the borrower

This structure provides exceptional benefits:

• Low down payment (as little as 10%)
• Fixed interest rates that won't increase
• Long repayment terms up to 25 years
• Preserves cash for other business needs

Eligible businesses include for-profit businesses in the U.S. with a net worth under $20 million and net profit under $6.5 million.

Current July 2025 Interest Rates

As of July 11, 2025, SBA 504 loan rates are:

• 25 Year 6.377%
• 25 Refi 6.406%

• 20 Year 6.397%
• 20 Refi 6.420%

• 10 Year 6.190
• 10 Refi 6.

These fixed rates provide stability and predictability for your monthly payments over the life of the loan.

Tax Benefits for Commercial Property Owners in 2025

Depreciation Deductions

Depreciation allows businesses to deduct the cost of a building over its useful life, typically 39 years for commercial real estate (excluding land). For example, with a $1 million property, you could deduct approximately $25,600 annually ($1,000,000 ÷ 39 years).

This steady deduction provides substantial tax savings over time, effectively lowering your taxable income each year.

Bonus Depreciation

Bonus depreciation for 2025 is currently set at 40% for eligible property placed in service this year. This is part of a scheduled phase-out from the Tax Cuts and Jobs Act, which will reduce the rate to 20% in 2026 and 0% in 2027.

This allows businesses to immediately deduct 40% of the cost of qualifying assets in the first year, with the remaining cost depreciated over the asset's useful life.

Note that there have been discussions about extending or reinstating 100% bonus depreciation, with legislation in 2024 passing the House but failing in the Senate. As of May 2025, no extension has been enacted, so businesses should plan based on the current 40% rate.

Cost Segregation Studies

Cost segregation studies involve breaking down the property into components (HVAC, electrical, plumbing, etc.) and depreciating these over shorter schedules (5-15 years) instead of the standard 39 years.

This accelerates your depreciation deductions, providing larger tax savings in the early years of ownership—especially powerful when combined with bonus depreciation.

Interest Deductions

Interest paid on SBA 504 loans is fully deductible as a business expense. This applies to both the bank-financed portion (50%) and the SBA-backed portion (40%).

For instance, if your business pays $50,000 in interest over a year, you can deduct that entire amount from your taxable income. This deduction is particularly valuable with the fixed rates of SBA 504 loans, providing predictability for tax planning.

Property Tax Deductions

Property taxes paid on commercial real estate are fully deductible as a business expense. For businesses in Alabama, where property taxes can vary by location, this benefit enhances the overall financial advantage of ownership.

Pass-Through Deduction

For businesses structured as LLCs, S corporations, or sole proprietorships, the pass-through deduction allows a 20% deduction on qualified business income. This can further reduce your tax liability, especially for smaller businesses that meet the income thresholds.

Additional Benefits of Commercial Property Ownership

Beyond tax advantages, owning commercial property offers several strategic benefits:

Control and stability: You can make improvements, expand, or renovate without landlord approval

Potential rental income: If you own more space than needed, you can lease out the extra space (must occupy at least 51% of the property to qualify for SBA 504 financing)

Long-term equity building: Property ownership builds equity over time and can serve as a hedge against inflation as property values often appreciate

Considerations for 2025

When planning your tax strategy for commercial property ownership, consider these important points:

• Bonus depreciation is currently at 40% for property placed in service in 2025, scheduled to decrease to 20% in 2026 and phase out completely in 2027 (unless Congress enacts new legislation)
• Stay informed about potential legislative changes that could impact tax planning, as discussions continue about extending more favorable depreciation benefits
• Always consult with a qualified tax professional to maximize your specific tax benefits based on your business structure, property type, and financial situation

Moving Forward

Commercial property ownership through SBA 504 loans offers significant tax advantages for small businesses in 2025. From depreciation and interest deductions to potential rental income, these benefits can substantially improve your financial position while providing the stability and control that comes with ownership.

If you're considering purchasing commercial property for your business, now is an excellent time to explore the SBA 504 program and its tax benefits.

For more information on SBA 504 loans, you can contact Alabama Small Business Capital at (334) 209-2600 or info@asbc504.com.

This article is for informational purposes only and should not be considered tax advice. Always consult with a qualified tax professional regarding your specific situation.