{"id":6749,"date":"2023-12-11T08:00:00","date_gmt":"2023-12-11T16:00:00","guid":{"rendered":"https:\/\/huddlestontaxcpas.com\/?p=6749"},"modified":"2023-12-11T20:49:31","modified_gmt":"2023-12-12T04:49:31","slug":"deducting-expenses-in-commercial-real-estate","status":"publish","type":"post","link":"https:\/\/huddlestontaxcpas.com\/blog\/deducting-expenses-in-commercial-real-estate\/","title":{"rendered":"Navigating the Maze of Vacancies: Deducting Expenses in Commercial Real Estate"},"content":{"rendered":"\n

Vacant spaces in commercial properties can be a nightmare. Not only do they represent lost income<\/a>, but navigating the complex world of tax deductions<\/a> for such spaces can be equally frustrating.<\/p>\n\n\n\n

Understanding the Rules of the Game<\/strong><\/h3>\n\n\n\n

The IRS doesn’t readily hand out “bonus points” for empty units. Simply having vacant spaces doesn’t qualify for a direct “vacancy loss” deduction. However, there are strategic ways to claim expenses associated with these empty rooms, making them less of a financial burden and potentially assist to offset your taxable income.<\/p>\n\n\n\n

Depreciation: the Beacon in the Darkness<\/strong><\/h3>\n\n\n\n

Empty or not, your building loses value over time — thanks to the magic of depreciation. For commercial properties, this usually takes the form of a 39-year straight line basis depreciation schedule. Allocate a portion of this deduction to the vacant spaces based on their size or rental value compared to occupied units.<\/p>\n\n\n\n

Note: this is when its critical to document everything, including when <\/em>you started advertising vacant spaces available. You need proof you have vacancies if you’re going to deduct anything. <\/p>\n\n\n\n

Maintenance and Repairs: Keeping the Lights On (Even When No One’s Home)<\/strong><\/h3>\n\n\n\n

Leaky faucets and flickering lights don’t discriminate against vacancies. Necessary maintenance and repairs for empty units remain deductible, even if they exceed the usual costs for occupied units.<\/p>\n\n\n\n

Seattle’s high cost of living<\/a> can translate to higher maintenance and repair costs for vacant units.\u00a0These costs remain deductible as long as the property is “held for rent.”<\/p>\n\n\n\n

Property Taxes and Insurance: Weathering the Storm, Together<\/strong><\/h3>\n\n\n\n

Property taxes, insurance, and even utilities (if you’re fronting the bill) can also be deducted. And Seattle has a high property tax rate<\/a> (among the highest in the nation).\u00a0While you can deduct the entire cost for the whole building,\u00a0the higher rate may exacerbate the financial impact of vacant spaces.<\/p>\n\n\n\n

Plus, Seattle’s susceptibility to natural disasters (like earthquakes) may influence insurance costs,\u00a0which are also fully deductible for the entire building,\u00a0including vacant units.<\/p>\n\n\n\n

Beyond the Basics: Exploring Potential Deductions<\/strong><\/h3>\n\n\n\n

For those willing to delve deeper, two advanced strategies exist:<\/p>\n\n\n\n