In commercial property, landscaping is one of the key features that entices potential tenants and keeps them in place. But it’s also an investment, and as such, facility managers should be aware of the rules regarding capitalization of landscaping costs. Some landscaping projects qualify as a capital improvement, while others are simply general repairs. The IRS provides guidance on the distinction between the two, but it’s best to consult with a tax professional for specific advice on how to treat your landscaping expenses.
A total landscape overhaul is a good example of an eligible capital improvement. It can elevate the look of a property and improve its value for the long term, making it more appealing to tenants or buyers. This project can include anything from a major tree planting to a redesign of the entire site.
Landscaping improvements can also boost the appeal of a rental property, attracting well-heeled renters and commanding higher monthly fees. This is especially true if the landscaping is designed to enhance curb appeal, boosting the perception of quality and the likelihood of a quick return on investment.
Some examples of a capital improvement project include installing a water feature, changing the design of an entryway or courtyard, building outdoor kitchens and laying interlocking pavers. Other projects that can be considered a capital improvement are upgrading walkways and eliminating trip hazards. For instance, replacing a section of a sidewalk that is cracked or crumbling can make the area safe for pedestrians and increase its overall value.
Removing shrubs that are too large and dropping leaves into a pool or creeping onto walkways can cut maintenance costs, as can switching from traditional sprinkler irrigation to drip irrigation that saves on both water usage and evaporation. Choosing plants that are native to the region can also reduce maintenance costs. Natives typically require less watering and fertilizer than non-native species.
A landscaping company may be able to get a sales tax exemption from the customer if it gets a properly completed Form ST-124, Certificate of Capital Improvement, from the customer. This will prevent the company from having to collect sales tax on materials that would have otherwise been subject to the state’s use tax.
All repair, maintenance, and installation services on real property are taxable unless the landscaper receives a valid tax-exempt certification from the customer. This document must be kept in the landscaper’s records and presented to customers who claim a tax-exempt status for all work performed by the landscaper.
If you’re considering starting your own landscape business, it’s important to know how much competition is in the local market. Researching competitors early on can help you identify potential revenue sources and set your business apart from the competition. It’s also a good idea to determine your niche and target audience so you can focus on developing your products and services to meet those needs. If you are unsure of how to proceed, consider consulting with a business law specialist and a certified accountant. capital landscaping