Is Painting a Commercial Building Considered a Capital Improvement?

Capital Improvement According to the IRS

Understanding how the IRS classifies capital improvements is essential for any commercial property owner trying to stay compliant and tax-savvy. The agency doesn’t just guess; it sets specific standards in documents like IRS Publication 527 and Publication 946, which outline how improvements should be handled for tax and depreciation purposes.

But here’s where things get tricky: these guidelines weren’t written with every real-world scenario in mind. That’s why gray areas arise, especially around common projects like repainting.

The IRS breaks down capital improvements into three categories: betterments, restorations, and adaptations. If a project falls into one of these buckets, it’s likely not a repair, it’s an improvement. And that means you’ll have to capitalize and depreciate it.

According to Publication 946:

• Betterments fix a condition that existed before you bought the property or materially increase its value.
• Restorations return property to its normal state after damage or replace deteriorated components.
• Adaptations modify a space for a new or different use than originally intended.

In other words, if your project fundamentally changes the building’s function or structure, it’s probably a capital improvement.

The “Unity of Property” Rule and Commercial Classifications

In recent years, the IRS has added complexity by introducing the “unit of property” concept, particularly for commercial buildings. This rule treats certain building systems as individual components, and they include: 

• HVAC systems
• Plumbing systems
• Electrical systems
• Escalators
• Elevators
• Fire protection and alarm systems
• Security systems
• Gas distribution systems
• Other structural components (roof, walls, windows, etc.)

Improvements to these systems can trigger capitalization, even if the project seems minor. If you repair just a small part of a system (like repainting drywall), it may be a maintenance expense. But if you’re replacing, improving, or restoring part of a “unit” — e.g., repainting the entire exterior while also upgrading windows or HVAC — that’s part of a capital improvement, per IRS definitions.

If you’re wondering whether painting a commercial building is considered a capital improvement, the IRS doesn’t provide a straightforward yes or no. Instead, it depends on the context of the work, which is where many property owners get tripped up.

In short:

• Standalone repainting jobs are usually maintenance.
• Painting tied to significant upgrades may fall under capital improvements based on how it supports the “betterment” or “restoration” of a building system.

Understanding that nuance is key to making smart tax decisions—and avoiding unnecessary scrutiny from the IRS.

Is Painting a Capital Improvement or Maintenance Expense? 

Painting might seem like a routine cosmetic task, but the IRS classification hinges on intent, scope, and timing. Let’s break down when painting is clearly maintenance and when it might legally be considered a capital improvement.

In most cases, painting a commercial space is part of regular maintenance.

What falls under maintenance:

• Touch-ups for chipped paint on office walls
• Repainting signage or faded entryways
• Surface-level paint jobs for aesthetic upkeep

These are non-structural, don’t extend the life of the asset, and are usually done for appearance, not function. According to IRC §1.162-4, these costs are fully deductible in the year incurred. That makes them easier to manage from a bookkeeping standpoint.

However, in some scenarios, painting can be a capital improvement. When? Painting may be capitalized if:

• The initial paint application is on a newly constructed building
• Repainting is part of a large-scale renovation, such as converting a warehouse into retail space
• Post-damage restoration is made, where painting follows major repairs after a fire or flood
• Painting that complements structural upgrades, like repainting after significant drywall replacement, new windows, or system upgrades

Here, the painting is supporting or completing a broader improvement, which the IRS may interpret as part of the capital project. These costs must be capitalized and depreciated over the building’s applicable life, often 15 or 39 years, depending on the system and classification. 

If you’re unsure whether to deduct or capitalize a paint job, look at intent and association with larger improvements. Is painting a capital improvement? Maybe. But is painting a commercial building considered a capital improvement by default? Not unless it’s doing more than just refreshing the look.

Special Considerations for Commercial Property

When it comes to commercial real estate, the tax game has its particular sides. The IRS applies different rules to businesses than it does to homeowners, and these differences are crucial when classifying painting costs.

Unlike residential property, where most improvements follow a straightforward 27.5-year depreciation schedule, commercial buildings fall under the 39-year rule, like we mentioned before, under the MACRS system. That means if a painting project is capitalized, the cost must be spread out over nearly four decades, rather than deducted all at once. For business owners trying to manage cash flow, that’s a big deal.

If the IRS determines your painting project qualifies as a capital improvement, you’re required to capitalize it, not expense it immediately. That cost gets added to the building’s basis and depreciated over time using the Modified Accelerated Cost Recovery System (MACRS).

Here’s how it works:

• Depreciation Schedule: Improvements like qualified structural upgrades (which may include painting in some contexts) are depreciated over 15 years (for land improvements) or 39 years (for building improvements).
• Useful Life: The IRS assigns fixed “useful life” periods to different types of commercial property improvements. Painting, when treated as part of the building itself (not decor), generally follows the 39-year nonresidential real property category.
• Capital Gains Impact: Capital improvements increase your adjusted cost basis. That means when you sell the property, you may owe less in capital gains taxes, since the improvements you’ve made raise the value of the asset for IRS purposes.

Maintenance Means Deductible Today

While “maintenance” means deductible today, improvement means deducted over time. This is the part most owners overlook. 

A simple maintenance paint job—like freshening up the walls of a retail space before a new tenant moves in—is fully deductible in the year you spend the money. That gives you immediate tax relief.

But say you repaint as part of a full remodel, or after significant fire damage repairs. In those cases, the IRS will likely require you to capitalize and depreciate the cost, which delays your tax benefit.

Here’s a short example:
Let’s say you repaint your entire commercial warehouse as part of a massive structural upgrade, including new insulation and roof reinforcement—total cost of painting: $38,000.

If the painting is considered part of that larger improvement, you’ll need to depreciate it over 39 years—that’s just $974 per year.

Compare that to a standalone $12,000 painting job on the same building’s interior, which can be classified as maintenance. That entire $12,000 is deductible this year.

Where Do Painting Costs Actually Go on Your Tax Return?

Once you’ve determined if it’s maintenance or a capital improvement, you need to report it the right way.

If it’s maintenance:

You’ll report the cost as a current-year expense, under “Repairs and Maintenance.” Where exactly depends on your business structure:

• Schedule C (Form 1040) — for sole proprietors
• Form 8829 — if it relates to a home office
• Form 1120, 1065, or 1120-S — for corporations and partnerships

If it’s a capital improvement:

You’ll capitalize the cost by adding it to your building’s basis, then depreciate it over the IRS-specified term:

• 39 years for most commercial improvements
• 15 years for certain qualified improvements
• Use Form 4562 to report depreciation annually.

Maintenance or Improvement? How to Get It Right on Your Taxes

Not every painting job is cut and dry—at least not in the eyes of the IRS. Thankfully, the IRS offers “Safe Harbor” rules that can help commercial property owners make more confident, compliant decisions when classifying expenses.

Here are the key safe harbors that apply to painting projects:

• De Minimis Safe Harbor: If the  total cost of a painting job is $2,500 or less per invoice or item (or up to $5,000 if you have an applicable financial statement), you can typically deduct it in full—no capitalization required. You must make this election annually when filing your tax return, and it must align with your company’s accounting policy.
• Routine Maintenance Safe Harbor: If repainting is done on a regular basis, such as every 10 years or less, to keep the property in ordinary operating condition, it may qualify as routine maintenance—meaning it’s deductible, not capitalized. This applies only if the activity was expected to occur more than once during the asset’s useful life.
• Repair Capitalization Threshold: If a painting job is part of a larger project—like a renovation or restoration—it may exceed the IRS capitalization threshold and must be added to the building’s basis. Watch out for situations where painting is bundled with electrical, structural, or HVAC improvements. Even if the paint itself is minor, it may need to be capitalized as part of the total job.

Best Practices to Stay Compliant

• Document everything: Save before/after photos, scope of work, detailed invoices, and any contracts related to the painting.
• Separate costs: If painting is part of a bigger project, list it separately in your records.
• Keep consistent accounting policies: The IRS expects consistency from year to year.
• Consult a CPA or tax advisor: They’ll help apply safe harbor rules properly and ensure you’re not leaving money—or compliance—on the table.

Understanding these thresholds can make the difference between an immediate deduction and long-term depreciation. When in doubt, err on the side of documentation and professional guidance.