Construction’s impact on your property’s functionality is the key

If you own a commercial property that has been productive for some years, you will need maintenance construction from time to time. The work could be considered a repair or a capital improvement.

But what is the difference between the two? It has to do with functionality, tax categories, and planning. Let’s start with some definitions.

What are the definitions?

According to Investopedia Capital Improvement is:

“the addition of a permanent structural improvement or the restoration of some aspect of a property that will either enhance the property’s overall value or increases its useful life. Although the scale of the capital improvement can vary, capital improvements can be made by both individual homeowners and large-scale property owners.”

To repair is to fix or mend something suffering from damage or a fault.

According to Wikipedia A Capital Improvement Plan (Program), or CIP is

“a short-range plan, usually four to ten years. It identifies capital projects and equipment purchases, provides a planning schedule and identifies options for financing the plan.”

They are often used for government projects but work well for commercial ones as well.

What’s the difference in the IRS’s eyes?

There is a difference between repairs and capital improvements as regards your tax filing. Consult your tax accountant for how this impacts you. This post is not advice, just a synopsis.  [Read more…]