No one in their right mind really likes overpaying tax. Being a business property owner, however, can be a blessing at tax time. Why? Because as the owner of qualified property, the U.S. Internal Revenue Service (IRS) allows a full spectrum of tax write-offs and credits that may greatly improve your bottom line at tax time. Using perfectly legal and legitimate tax breaks is an excellent way for business property owners to decrease their costs of operation.

Repairs and improvements to qualified properties are two of the most useful tax deductions for business owners. But what is the difference between the two and why is it important?

Repairs

Repairs are usually one-time events that keep the property in good condition and make it functional. According to the instructions for IRS Form 1050, Schedule E, “Repairs in most cases do not add significant value to the property or extend its life.” Examples of repairs would include fixing a broken door lock, replacing a broken window, or swapping out a non-ringing doorbell.

Improvements

On the other hand, improvements are any actions or work done that increase the value of the property or extend its working life in some fashion. In most cases, if you are adding a new item, or upgrading an existing item, it’s considered an improvement. Some examples of improvements include building an addition to property or renovating the front office. Improvements are generally considered as capital expenses by the IRS. For tax preparation purposes, they may be capitalized and depreciated over a number of years.

In conclusion, both repairs and improvements can be beneficial to business owners when submitting tax returns. Often, it’s fairly obvious whether you are dealing with an improvement or a repair.

Contact a San Diego CPA for more guidance

In some cases, however, it may be difficult to distinguish between the two. Every businessperson’s situation is unique. Indeed, there has been considerable debate and more than several court cases regarding the difference. In situations like that are complex or confusing, having a knowledgeable CPA on your side will help you with your tax preparation and keep you from running afoul of the IRS.