Submit Your Information Below and Someone From The Office Will Be in Touch!
Your Privacy is protected.
By Ted Lanzaro, CPA
One of the most overlooked deductions relative to owning commercial real estate is the difference between an improvement and a repair.
They may appear to be similar but how you present and structure the facts can be the difference between a $20,000 immediate tax deduction or a $500 deduction every year for 39 years.
This is because improvements needs to be considered part of the cost basis of the property and depreciated over the useful life of the property (27.5 years for residential, 39 years for commercial). Based on the time value of money, the larger immediate deduction is much more valuable to the building owner. The way the repair is planned out and structured can mean the difference in winning or losing an IRS audit.
Classifying repairs versus improvements is even a tough question for the IRS. In their internal manual, it states, "it is a difficult issue requiring maximum use of judgment". In 2015, the IRS issued permanent regulations that made it easier to classify work done on a building as a repair as long as it was documented correctly.
Let’s look at some situations where this study is appropriate and some examples of how commercial building owners have benefited from such a study.
8 Powerful Tax Strategies
So, here are eight powerful strategies to help you ensure your repairs will be immediately deductible:
The bottom line is how you make and document the repairs makes all the difference in getting and keeping the deduction. Make sure you have kept good records including taking date-stamped photographs, logging tenant repair calls, and getting separate bills from contractors for repairs.
Remember, it is better to take the immediate deduction of the entire cost than it is to depreciate the cost over a period of years.
For more tax savings strategies for real estate investments, contact CPA Ted Lanzaro by clicking this link.