How to Write Off Commercial Property: Tax Basics and Smart Moves

Commercial property owners are always on the hunt for ways to keep more cash in their pocket when tax season rolls around. If you've heard you can "write off" your building or expenses, you're on the right track—just don't expect it to be as simple as deducting the shirt you donated to Goodwill. There are rules and timelines here, but the good news is, the benefits can be massive.

To start, writing off commercial property usually means taking advantage of IRS depreciation rules. Instead of subtracting one giant property cost from your income all at once, the IRS lets you chip away at it over nearly four decades. Seems slow, but those yearly chunks add up fast. Plus, other stuff—repairs, upgrades, even certain fees—can be fair game for deductions if you track things right.

The magic is all in the details. Mess up the math or miss a step, and you could be leaving thousands on the table. But nail the basics and keep good records? You're setting yourself up for huge savings, not just this year, but every year you own the place. Let's break down how it really works, with no fluff—just the real deal and a few tricks the pros use.

• What Qualifies as a Write-Off?
• Understanding Depreciation
• Real-World Deductions and Pitfalls
• Maximizing Savings When Selling

What Qualifies as a Write-Off?

If you own a commercial building, piling up write-offs is how you trim your tax bill. The IRS doesn’t let you deduct just anything, though. Start with this rule: only expenses that are ordinary and necessary for running your business or keeping your property in shape will pass the test. And trust me—what seems obvious to you isn't always obvious to the IRS.

The single biggest write off commercial property owners take? Depreciation of the building itself. You can’t just write off the full cost the year you buy it; the IRS says you have to spread it out over 39 years for commercial properties. Land doesn’t count—only the building and improvements.

Beyond depreciation, here’s what you can often write off:

• Repairs and Maintenance: Fixing the roof, patching parking lots, swapping out broken windows. If it’s keeping things in working order (and not a major upgrade), it’s usually good.
• Property Taxes: Local or state taxes on the property itself are almost always deductible.
• Mortgage Interest: If you’re paying interest on a loan for your commercial place, you can deduct that interest, but not the loan principal.
• Insurance Premiums: Fire, liability, and general building insurance are fair game.
• Utilities: Think electricity, water, gas, garbage—costs to keep the place open for business.
• Professional Fees: Did you hire a lawyer or accountant for property business? Those fees count, too.

Just don’t try to write off things like new landscaping or adding a second story all at once. Big upgrades or new construction have to be depreciated over the useful life, not written off the same year you spend the cash.

Here’s a practical look at what you can and can’t write off:

Bottom line: Deduct regular expenses quickly, but be ready to play the long game with big-ticket improvements. If you’re not sure what qualifies, ask your CPA—missing a write-off stings, but getting flagged by the IRS hurts even more.

Understanding Depreciation

Depreciation is the main way to write off commercial property and it’s one of the best things going for owners on their taxes. Here’s how it works: the IRS says you can’t just deduct the entire price of your building in one shot, even if you paid cash for it. Instead, you break up the cost over 39 years. That’s called the Modified Accelerated Cost Recovery System, or MACRS, and it’s the standard rule for commercial spaces built after 1986.

Let’s break it down with a real number. If you buy a warehouse for $1,000,000, you don’t write off all that at once. Exclude the land value (land doesn’t wear out, according to the IRS). If the building is worth $800,000, you’d divide that by 39—so you could deduct about $20,513 per year as depreciation.

This isn’t just a paper trick. Depreciation lowers your taxable income every year, which can mean real savings. But there are a few things you have to watch for:

• Land can’t be depreciated, only the building and certain improvements count.
• If you remodel, add a new roof, or upgrade systems, you may get extra deductions, but not everything qualifies. Keep receipts and paperwork.
• Start the depreciation the month the property is placed in service—not just when you buy it. Move a tenant in? That month is your starting point.

Some owners miss out by guessing at numbers or forgetting to factor in renovations. Double-check everything and ask a tax pro if you’re unsure. Two other tips: cost segregation studies (where experts break out each part of your property with different timelines) can speed up deductions. Also, if you sell the building, the IRS might "recapture" some of those previous deductions, so factor that into your plans.

Real-World Deductions and Pitfalls

When you're looking to write off commercial property, not every dollar you spend turns into an automatic deduction. The game is about knowing which costs count and which ones get flagged by the IRS. For starters, repairs that keep your building running—like fixing a broken window or patching a leaky roof—are usually deductible the same year you write the check. But upgrades that boost value, like a new HVAC system or a fresh addition, count as capital improvements and get spread out over years through depreciation.

Utilities, property insurance, and even property management fees can usually be deducted in the year they hit. Don't forget about loan interest—if you took out a mortgage, the interest portion of your payment is typically tax-deductible. Here’s a quick look at common deductions for commercial property owners:

• Property taxes
• Repair and maintenance costs (not improvements)
• Mortgage interest
• Insurance premiums
• Qualified professional fees (legal, accounting, management)
• Advertising and leasing expenses

But watch out for the IRS trapdoors. Capital improvements aren’t a one-time, big write-off. Miss this, and you could get in hot water if you ever face an audit. Another big one: don’t try to write off personal expenses or upgrades made for your own use—they need to be for the business property, not your home office tucked in the corner.

Looking at the numbers, commercial property owners in the U.S. can generally write off property costs over a 39-year period. Check the chart below for the most common depreciation lifespans:

One more pitfall: if you sell your building for more than the depreciated value, the IRS wants its share back through a process called depreciation recapture. That can trigger a higher tax bill than you expected, so keep those records tidy from day one. In short: know which expenses fly, watch out for IRS rules, and never guess when it comes to paperwork. If it feels complicated, a good CPA pays for themselves in headaches you never have to deal with.

Maximizing Savings When Selling

Once you’re ready to sell, it’s tempting to just sign the paperwork and celebrate. But here’s a twist: how you handle that sale could mean saving (or losing) tens of thousands in taxes. The first thing to watch is depreciation recapture. Over the years, you’ve taken annual depreciation deductions. When you sell, the IRS wants a cut back. That portion gets taxed as regular income—not the lower capital gains rate—so prepare for a bigger bill than you might expect.

Another big thing? Timing the sale. If you can wait at least one year after purchase, your profits count as long-term capital gains—taxed at 15% or 20% for most people, instead of your regular income tax rate, which is usually higher. Even if the thrill of a quick sale is strong, hanging on a little longer can make a real difference.

There’s also the 1031 exchange—an old school trick used by experienced investors. If you sell your commercial property and use the money to buy another like-kind property, you might not have to pay taxes on your profits right now at all. It’s a paperwork hassle, but the tax deferral is totally worth it if you want to keep your cash invested instead of handing it over to the IRS.

• If you made improvements (like a new roof or major HVAC upgrade), check if those expenses are still depreciating—sometimes you can add their undepreciated portion to your cost, lowering your taxable gain.
• Keep all receipts, settlement statements, and records of your sale for at least seven years. Audits happen, and the right paperwork could save your skin.
• Don’t guess on your tax bill. Get a good accountant—preferably one who knows real estate inside out.

One more heads-up: if you're selling at a loss, you may be able to write off that loss against other income, but there are limits and rules. Don’t leave that stone unturned. At every step, the main thing is knowing the rules—and using strategies like 1031, smart timing, and tracking improvements to preserve your profits and cut your tax bill. That’s how the pros do it in the write off commercial property world.