Can You Capitalize & Depreciate Landscaping?

Can You Capitalize & Depreciate Landscaping?

We’re going to start this one off by saying we are not accountants, so please check with your CPA on this. However, we do have experience in this area and would like to offer our thoughts.

For individual homeowners, unfortunately the answer is no – landscaping additions and improvements are not capital expenses and cannot be depreciated. It seems like you should be able to deduct the cost of improving your home, but tax laws just don’t work that way. The one caveat is that these home improvements can be deducted from any profit you make when selling your home.

The downside is that for individuals, the first $250,000 of profit from a home sale is tax-free, going up to $500,000 for married couples. And, you must have lived in the property for two of the past five years. Unless you are making a major profit on the sale of your home, these improvements will not matter.

Now, for businesses and those who own properties for rental, you have a bit more leeway in terms of depreciation. Again, maintenance (i.e. repairs to keep things in shape) is a normal expense. But improvements can be capitalized and depreciated, provided you can determine the ‘useful life’ of the improvement. This means if the improvement has a life span – a length of time it will be in service – amortize and deduct it.

Land itself has no useful life and does not depreciate in value. But, improvements to the land do. If you buy a piece of property in order to sell in the future, clearing and grading the property would be an expense and an improvement, but don’t have a useful life. However, adding a paved driveway does have a useful life. So do items like fencing, draining and irrigation, and possibly even landscaping. If installing new landscaping improves your property, you have a strong case for a deduction.

All of these improvements follow a 15-year depreciation schedule. Each can be separated from the value of any building and depreciated separately. Following the 15-year depreciation schedule will allow you to deduct a greater percentage each year.

A more interesting example is if you happen to own a property with a lot of acreage. Using some unique laws, you can declare the extra land to be a farm, forest or wildlife preserve. These provide special tax benefits, and deductions for reforestation or preservation efforts.

For residential homeowners, you do not get much help from the government with landscaping deductions, unless you have a lot of land that you want to turn into a forest or farm. Commercial property owners have many more options and abilities to depreciate improvements to your property. For many business owners, this provides an additional incentive to continually improve and update their properties.

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