Is Commercial Landscaping a Capital Investment? Let’s Explore

January 29th, 2018      Posted By: Ashwin Iyer

No matter if it is a business or residential property; it makes sense that your property speaks volumes about the quality and class you maintain. It is no secret that a well-designed and properly maintained landscape can strengthen your brand image and adds value to the property. A professional landscape takes the property to a […]

No matter if it is a business or residential property; it makes sense that your property speaks volumes about the quality and class you maintain.

It is no secret that a well-designed and properly maintained landscape can strengthen your brand image and adds value to the property. A professional landscape takes the property to a level far beyond beauty. This is environment-friendly and keeps everyone healthy. As such, commercial landscaping is imperative to make your property attractive.

What is commercial landscaping?

Commercial landscaping is a multi-faceted service that includes planning, designing, installation, and maintenance of aesthetically appealing outdoor spaces for the business sectors. This is different from residential landscaping. The professionals make an appropriate layout of the landscape to make an awesome working environment for reflecting the theme and values of the business.

The persisting dilemma

Opting for commercial landscaping, the question that comes first in our mind: “Is Commercial Landscaping a Capital Investment?”

Unfortunately, there is no right or wrong answer to this, and none can categorically say YES or NO.

We all know that when improvements are made to a business or residential project, these fall under the category of capital investment and hence attract tax. However, the repairing and maintenance expenses do not fall under this category. This is a gray area, and the grouping is very dicey. As such, it is always better to take professional help.

However, let us take a walk through this to have some basic understanding.

Understanding the difference

Cost of all routine actions that help to keep the property in the original condition falls under ‘Repairing and Maintenance’ cost. Generally speaking, the actions to put the property back to its original condition, or taken to prevent further deterioration at the expiry of its ‘useful life’, are treated as maintenance costs. On the other hand, cost of any action that helps to improve the market value of the property falls under capital improvement.

Specifics of Capital Improvement

Capital improvement involves the cost of the actions performed to enhance the condition of any property beyond the original or current state, and there has been much debate and controversy over categorization of the expenses. According to the IRS of the Federal Government, any cost meeting the following criteria falls under capital improvement.

  • Expenses to fix a defect or design flaw
  • Expenses for adding, enlarging or expanding
  • Expenses for increasing capacity, productivity or efficiency
  • Expenses for Renovating or rebuilding a property after the shelf life
  • Expenses to replace major components or structures
  • Modifying a property to a new or different use

The thumb rule is that capital improvement adds some more value to the property, and maintenance cost retains the existing value.

Maintenance can turn into a capital improvement

Although it seems surprising, it is not impossible. A crude example will clear the issue. Suppose, your roof is leaking, and you have hired professionals for repairing it. In case, they find the roof beyond repair and replace the entire roof, then such cost will fall under capital improvement, although the leak repairing would have considered as maintenance expenses.

Landscape costs falling under capital improvement

While these popular landscaping costs are likely to be treated as the capital improvement, you should take professional help for knowing the exact status.

  • Hardscape addition: Creating a pavement or a gathering space for the employees, or introducing some statues, or creating a patio is treated as the capital improvement. Mind, which is replacing an old hardscape with a similar one, could fall under maintenance and be repairing expenses.
  • Illuminating the landscape: While replacing an existing lighting system with a similar one might be treated as maintenance cost, arranging large-scale lighting for improving safety & security, or introducing the LED lights for energy saving is likely to qualify as the capital improvement.
  • New irrigation system: If there was no irrigation facility earlier, adding an irrigation system will fall under capital improvement. Upgrading the old irrigation system will fall as well. Of course, this is determined by the scope and scale of the irrigation system employed.
  • Overhaul the landscape: Maybe, you have a landscape that was made decades ago. It is not surprising that the same will look boring now. You can update the landscape to make it adorable. This may include anything from planting trees & plants to make it environment-friendly. Although this involves much cost, it will be beneficial in the long run. Such costs are likely to be treated as capital improvement costs.

What does not fall under capital improvement?

As per IRS, cost of repetitive activities like inspection, cleaning, testing, and replacing parts, etc. that are to be performed for using the property in its original operating condition, are not capital improvements. As such, the cost of mowing, weeding, fertilizing, pruning and inspecting the hardscapes for damages will count as maintenance & repair expenses. Moreover, introducing a bed of seasonal flower will not fall under capital improvement.

Improving landscape with artificial trees and plants

The artificial trees and plants are now made from prime quality silk foliage. Backed by improved technology, these are made 100% botanically correct, and they are sure to evade the most experienced eyes. These are not season dependent and, therefore, they maintain their shine equally in all seasons and deliver an environment free from insects.

Faux landscaping element can minimize capital improvement cost

Unlike the live plants, the artificial trees and plants have no lifecycle, and they never die. As such, there is no replacement requirement till you decide to use something else. These are light in weight. Coming in standard bases, they can be installed without professional help and thus, you have a reduction in the cost of updating that qualifies as capital improvement costs. Being portable, they can be interchanged between places for changing the view, without incurring any extra cost.