In addition, while you can deduct annual depreciation based on the building’s cost when you buy, no depreciation is allowed for the portion related to land. Moreover, depreciation on commercial buildings is written off over a long period of time — generally 39 years. It has no affect on your cash flow.
Additional tax-related items to consider include repairs vs. capital improvements and cost segregation.
Because these matters can become complex, you should consult your tax professional.
As I mentioned at the outset, the decision isn’t always an easy one. But there are exceptions.
An early client struggled with the buy-versus-lease question. Unfortunately, he didn’t seek professional advice as he weighed his options. He bought a building. Unfortunately, his credit wasn’t very good and a large down payment was required.
But there was a greater problem: the building was “off-the-beaten path,” a crucial mistake because his retail business depended on foot traffic.
Bills piled up. Creditors began calling. He closed doors within six months. Would it have ended differently if the man had taken the time to analyze his situation (possibly with the help of a professional), and leased space in a prime location instead of buying “off-the-beaten path”? I still catch myself wondering.”
This article is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the subject of this document, please contact an independent tax advisor to discuss your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this article may be considered to contain written tax advice, any written advice contained in, forwarded with, or attached to this article is not intended to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.