We built a shop that is used 100% for my husband's small business. Is it more adventageous tax-wise for the business to rent the building or to own and depreciate it?

[SabrinaD2]

Deciding whether to rent or own and depreciate a building for your husband's small business involves weighing the tax advantages of each option. Here's a clear comparison:

Renting the Building

Advantages:

1. Fully Deductible Rent Payments: Rent payments are fully deductible as a business expense, which can reduce your taxable income significantly each year.
2. Flexibility: Renting offers the flexibility to relocate without the burden of selling property.

Disadvantages:

1. No Equity: Rent payments do not build equity in the property.
2. Potential Rent Increases: Rent can increase over time, impacting long-term costs.

Owning and Depreciating the Building

Advantages:

1. Depreciation Deductions: You can depreciate the building over 39 years for commercial property, reducing taxable income annually.
2. Equity Building: Ownership builds equity, which can be beneficial for future financial stability.
3. Potential Appreciation: The property may appreciate in value over time, providing additional financial benefits.

Disadvantages:

1. Upfront Costs: Higher initial costs for purchasing the property.
2. Maintenance and Repairs: Owners are responsible for all maintenance and repair costs.

Conclusion

If immediate tax deductions and flexibility are priorities, renting might be more advantageous. However, if building equity and benefiting from depreciation deductions are important, owning the property could be the better option.