Improve commercial property now to capture 2013 tax benefits

Commercial Real Estate for Sale and LeaseReal Estate Tax Talk

Stephen Fishman – May 17, 2013

If you own and rent out commercial real estate and have been thinking about making improvements to the property, you should do so by Dec. 31, 2013.

Qualified leasehold property improvements made during 2013 can qualify for the following tax benefits:

  • 15-year depreciation period (instead of 39 years).
  • Section 179 deduction up to $250,000.
  • 50 percent bonus depreciation.

Any one of these benefits would be great, but all three together enable commercial landlords (and lessees) to deduct a huge percentage of the cost of making improvements in a single year, rather than having to depreciate the entire cost over 39 years.

Example: Sam owns a small office building that he rents out. During 2013, he spends $500,000 to redesign the building’s interior office spaces. This includes installing new walls, doors, ceilings and floors.

Sam gets to deduct the following amounts in 2013:

  • $250,000 Section 179 deduction.
  • $125,000 50 percent bonus depreciation.
  • $7,292 regular deprecation (based on 15-year depreciation period).