Every year I have taxpayers who spend large amounts of money on improvements or construction of a building that they either rent or use in their business. Problem? You are required to depreciate these costs over either 27.5 years for residential rental property, or 39 years for commercial rental or structures used in the normal course of business.
I recently had a taxpayer who spent $90,000 on a building and assumed that it could all be deducted this year. In fact, their deduction was limited to $577 dollars, since the building wasn’t placed in service until September.
These capitalization rules apply to:
- Land improvements and landscaping.
- New rental property – both purchased and constructed.
- New business building – both purchased and constructed.
- Leasehold improvements. These are improvements to business property you rent.
Lesson to be learned: Don’t assume anything! Call your tax advisor in advance of major expenditures so that you understand all tax ramifications. You don’t want to be like my client who used all their funds for the new building and now has to borrow to pay their tax bill.
Until next time, thank you for your continued support and let’s make this year our most profitable year ever!
Like any good CPA, I need to add a disclaimer: Unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.