The cost of maintaining an industrial building is tremendous for small business owners. If you are looking for ways to save, look no further than your tax return. The tax man takes away a big chunk of your profits every year and there isn’t anything you can do about it. Or can you?
There are actually a host of savings available to businesses depending on the type of maintenance you have gotten throughout the year. Take a look at this guide to claiming industrial building repairs on your taxes.
What is a Tax Deduction?
Tax deductions are ways to lower your taxable income using expenses. Deductions have to happen during the year you are filing for.
For example, if you are filing this year’s taxes, any expenses you claim as deductions must have been paid during that calendar year. There are exceptions based on your company’s fiscal year.
Also, different regions have their own tax codes that allow you to deduct certain expenses from your taxable income. These codes vary at the state and federal level.
The tax code changes annually so this year’s approved deductions might not be next year’s. Some tax deductions by local governments are used as incentives to get businesses to move to certain areas.
These special areas of town usually yield their own set of tax breaks. If you are industrial building is in an improvement zone, you might be able to claim more on your state and local tax return than what you are claiming at the federal level.
Industrial Building Needs
Owning industrial property is owning an expensive maintenance plan. The cost of your monthly and annual maintenance are deductible on your tax return.
These expenses qualify as long as you have proof of payment and get the right paperwork from contractors. Avoid doing any business in cash no matter how cheap your contractors are.
The paper trail will come in handy in the event of an Internal Revenue Service (IRS) audit. Good record keeping sets businesses with big tax breaks apart from those with big tax fines.
When the tax man comes knocking, he will want all your deductions back plus interest for the years in question. Keep good records to prevent this from happening. So make sure to save all of your paper receipts and electronic payment records just in case.
Other industrial building needs includes remodeling or renovations. You don’t simply slap a coat of paint on a warehouse wall to make improvements like you could in an office building or store.
Industrial building improvements are commonly remodels. Make sure you cross reference each expense of the remodel with the current tax code.
These expenses need to be itemized even if you use only one vendor to do the work. The work might include items that aren’t considered deductions for that year.
It is not worth saving a few hundred dollars to slip in expenses from a repair. The easiest way to flag your tax return for an audit is to have an extremely high amount of questionable deductions.
Here are two common types of repairs that usually warrant a tax deduction.
The industrial building allowance for energy efficient improvements is around $1.80 per square foot. This rule applies under the Energy Policy Act of 2005. Boiler costs and other heat or electric expenses should be considered, especially with sky-high energy costs in 2023.
This policy was updated in 2012, but generally allows you to write off repairs or renovations that conserve energy. Make sure your contractors work under the American Society of Heating, Refrigerating and Air Conditioning Engineers standards.
If your improvements don’t meet their standards, they won’t be approved deductions for energy efficiency. Your improvements must also lower heating and cooling costs by a minimum of 50 percent.
Tax Code Section 179
Section 179 allows companies to deduct any leasehold improvements at 100 percent. This applies to industrial buildings as long as the remodel doesn’t require making the building larger.
Adding elevators and escalators are also not allowed with this deduction. Before this deduction, companies relied on depreciation to get their money back from expensive improvements.
You can deduct the full cost of the repair or expense up to a certain amount. Double check the amount for that year before planning any critical improvements to your industrial building.
It might make sense to delay major construction over the years so you receive the maximum tax benefit each year.
What About Industrial Building Repairs?
Industrial buildings require repair from time to time. This is true especially for older buildings you want to restore to safer conditions.
Repairs are different from improvements in that they maintain the value of a property. If you are making changes, even for cosmetic reasons, to the building to keep up the property value it counts as a repair.
Improvements aren’t required to maintain the value of a property. They are usually done so that an industrial building is worth more than it’s currently worth.
This is an important difference to know for tax purposes since there are limits on both. The IRS rarely allows any deductions to include building expansion.
Instead, you would depreciate your remodel to increase the size of the building over time. The IRS updates its depreciation tables every few years.
Check IRS Publication 946 for the latest deduction information available to businesses.
Industrial Steel Buildings
Unless you buy an industrial building new or build it from the ground up, you will need to plan for improvements and repairs. There are very important distinctions between the two.
Knowing this difference helps you track where you are in your tax liability for the year. It’s important to stretch out major remodels so all your deductions don’t fall in the same year.
Be flexible on any improvements, but not repairs. Repairs can worsen if neglected whereas improvements are above and beyond what you need to operate.
If possible, separate your contractors for improvements and repairs so the itemized expenses are easier to track. For more information and tips on industrial building and property management, visit more of our blog for updates in the Finance section.