Commercial Capital Improvements, what are they?
Commercial capital improvements are improvements made to commercial property that increase its real estate value or improve its functionality. They can include anything from new construction and renovations to repairs and maintenance of a commercial real estate property.
Some common commercial capital improvements can include adding a new wing to a building, renovating an existing space to make it more functional, or repairing and maintaining the property to keep it in good condition. These improvements can add value to the property by making it more attractive to potential tenants or buyers, or by improving its functionality and making it more productive.
Then what are Leasehold improvements?
Capital improvements can be made by a landlord or a tenant. Leasehold improvements are improvements made by the tenant. Many times, these improvements are negotiated between the landlord property owner and its tenant business owner to share the responsibility of costs equally. With the right business strategy, both can benefit from sharing leasehold capital improvements costs; The landlord benefits from the steady income that would bring in month after month, and the tenant would benefit from a potential cash-flow increase from investing in growing their business operations.
What Qualifies as Capital Improvements?
To be a property capital improvement, the project must have been planned and undertaken intending to increase its value or improving its functionality. The new construction or renovation must be permanent to the building (i.e., it cannot be removed after the completion of the project). Last, you would need to hire someone else to do this work so that it qualifies as a capital cost expenditure under tax law.
Capital Improvements vs repairs What’s the difference?
The IRS considers a capital improvement as something that adds value to the property and increases its marketability. If you repair your roof, or replace your roof with a newer model, this is not considered an improvement because the repair does not add value to the property, therefore the IRS distinguishes it as a repair expense. However, if you add solar panels to the roof of a building, it is considered a capital improvement because it would add value to the property.
Moreover, the major distinction is that if it adds value to your property, and it is fixed to it, it is a capital improvement; if it is to keep a building in a good condition, it is considered a repair expense. In business, both are expenses, but differentiating them one from another can be the difference between just being an expense or benefiting from a tax credit. But we recommend checking with your accountant tax preparer first if you are planning to undertake on a capital improvement project.
More Examples of Capital Improvements
Examples of capital improvements include:
• Adding a new wing to an existing building
• Renovating an existing space to make it more functional.
• Repainting the interior of a building
• Installing new flooring or carpeting in a commercial space
• Installing a new HVAC system or replacing the existing one
• Replacing windows in an office space
• Repainting a building
In essence, capital improvements in businesses are anything done to a building that makes a business generate profit from the investment. Whether the nature of the investment is aesthetic, an expansion to the building square footage, or even purchasing and installing new equipment that will help the business save or generate money is considered a capital improvement and all of it is tax deductible.
Conclusion
Commercial capital improvements are investments that a business can make in order to increase its value over time. While they have a higher return than other types of investments (like buying equipment), they can also be expensive, and there are several ways to finance them, which is why small businesses have difficulty funding their projects.
The key to undergoing a successful capital improvement project is to jut down exactly what you need and think of ways you could save money. This includes finding a reputable contractor willing to work on your behalf. This means a contractor with extensive experience who could use its resources such as getting better pricing from suppliers and passing a discounted price to your projects for materials, getting quotes from quality subs so that you get the best price and quality, and of course, managing your projects to meet budget and deadline.
If you are in need of commercial construction services in Laredo, Texas, don’t hesitate to reach out to us. We can help you get the most out of your investment by providing you with information about the latest technologies
