Your commercial property is more than a home base for your business; it’s an investment. Like all investments, your commercial property requires due diligence and effort to nurture and grow your return. One of the best ways to maximize your ROI is by working with a commercial contractor to make tax-deductible improvements to your commercial space. These improvements optimize resale value while mitigating taxes when selling your property. Here’s our expert guide to what qualifies as commercial capital improvements:
What Are Commercial Capital Improvements?
Business capital improvements are improvements to your commercial space that raise its value and increase tax deductions when you sell. You cannot deduct these improvements from your annual tax returns.
These improvements are investments you can use as tax deductions only when you sell your property. They typically only apply if you owe capital gains taxes. Moreover, if you use specific loans to make these improvements, you can claim the interest paid for improvements, too.
Understanding the ins and outs of capital improvements requires considerable expertise, so working with a premier commercial contractor is crucial to maximizing tax savings.
What Qualifies as a Commercial Capital Improvement?
Per the IRS, commercial capital improvements raise commercial property value, elongate a structure’s lifespan, or adapt a property for other uses.
Typically, these improvements are categorized as betterments, restorations, and adaptations and must be attached to the property; things like refinishing the lobby or HVAC installations are commercial capital improvements, while adding interior decoration is not.
Other qualifications include replacing 30% or more of a building component, like flooring. Routine repairs, like fixing a rain gutter, changing locks, or fixing a broken window, do not qualify. While there are some exceptions, most depend on intent and scope.
The IRS generally considers replacing a few windows a repair, but if replacing them is a component of a larger project to optimize your facility’s energy efficiency, for example, these repairs become commercial capital improvements.
Still, understanding what qualifies as a business capital improvement and learning about other available tax breaks is complicated and requires consulting with the preeminent contractor in your area to maximize your savings and the value of your commercial space.
What Are Examples of Commercial Capital Improvements?
There are countless types of commercial capital improvements available for people to make to their company property. Common examples of business capital improvements include:
- Breakroom modernization: Breakroom modernization includes upgrading cabinets, adding appliances, replacing flooring, and adding counter space.
- Swimming pool or gym installation: Adding a gym or pool raises property value for hotels, and these additions qualify as commercial capital improvements.
- Carpeting and lighting: Adding or replacing wall-to-wall carpeting is an excellent corporate capital improvement, as is installing energy-efficient lighting systems.
- Installing a security system: Installing a security system and adding other layers of security can also increase property value and qualify as a business capital improvement.
- Add an outdoor space: Building an outdoor space for employees and clients to relax or work in is another excellent corporate capital improvement you can make.
There are countless business capital improvements you can make, like landscaping, parking improvements, plumbing improvements, and other improvements to businesses across industries, that can optimize your tax situation when you sell your property.
Learn How Alpha Omega Contractors Can Increase Your Tax Savings with Commercial Capital Improvements
With over four decades of collective experience in commercial construction, Alpha Omega Contractors thinks it’s important to share what’s happening with commercial construction projects because it is helpful to our clients and your business. As your go-to commercial construction company in Southern California, our AO team helps bring your commercial projects to life with locations in both the Orange County and Los Angeles area. Our experienced team of commercial contractors, designers, and design-build experts will collaborate with you from the initial stages of pre-construction through to putting the finishing touches on your next commercial project on time and within budget. For more information, contact us by filling out this form or calling us at (714) 616-0417.