Whether you’re a homeowner or a property manager, upgrading your landscape can boost curb appeal and raise the value of your home. If you own commercial real estate, a vibrant landscape can make your business a more attractive and welcoming place for customers or tenants. However, determining what landscape costs are capital and which are repairs can be confusing. Here are some tips for distinguishing capital landscaping expenses from other types of expenditures.
According to the IRS, capital improvements add significant value to your property, while repairs preserve existing value. Landscaping that is considered a capital improvement will generally be more substantial than routine maintenance, such as mowing, trimming, watering, weeding and reseeding. However, many of these tasks may be necessary to maintain the health and functionality of your property. For example, reseeding and aerating your lawn may be necessary to repair damaged turf or promote new growth, especially in high-traffic areas.
Some examples of capital landscaping projects include a complete landscape overhaul or the installation of hardscapes. Building walkways and retaining walls, adding drainage and installing irrigation systems can all be classified as capital improvements since they will increase the use and value of your property over time. Other examples include reshaping the site to improve the aesthetic, creating a visual focal point for the space or addressing a safety issue (e.g., replacing worn-out walkway pavers with new ones that reduce trip hazards).
It’s important to note that capital improvements must be made to your primary business or commercial property and must have a useful life of more than one year to qualify as an expense. Similarly, a temporary structure or a nonpermanent improvement must be depreciated over its short life to qualify as a capital expense.
If you’re not sure whether a landscaping project meets these requirements, consult your tax professional for guidance. Some landscaping services are specifically excluded from capitalizing, including ongoing mowing, pruning, weeding and monthly inspections of lighting and irrigation systems. These activities can be categorized as repairs and may be subject to sales tax.
If you’re performing capital landscaping services, make sure to get a properly completed Form ST-124, Certificate of Capital Improvement, from the customer. This will allow you to exempt the landscaping work from sales tax, and you should keep a copy of it in your records. Without a valid certificate, your landscaper will need to charge sales tax for the work.