Much has been written and discussed about the tax benefits of owning commercial real estate. However, many well-respected businesses choose to lease space instead of owning it. Not only does leasing give your company greater operational flexibility, but it also has some significant tax advantages over owning the space that you occupy.

Full Deductibility of Rent Payments

Every penny of rent that your company pays is tax deductible as a business expense. If you choose to buy your space, you won't be able to write off your down payment and you won't be able to write off the principal portion of your monthly payments. As you pay your mortgage down, the increasing principal payment decreases the amount of tax shelter you get from owned real estate, making leased space an even better deal.

No Capital Gains or Recapture Tax

If you own property and sell it at a profit, you will have to pay capital gains tax on your profits. When you sell it for more than the depreciated value, even if you actually lost money on the building, you also have to pay depreciation recapture tax. With leased property, you don't own anything, so you don't have an asset that will be liable for recapture or capital gains tax.

Accelerated Depreciation on Leasehold Improvements

When you are a tenant and you pay for "leasehold improvements," which are changes to the space that you occupy, you have the option of depreciating them over a period as short as the remaining term of your lease. For instance, if you build a wall to divide your space and your lease only has three years left, you can depreciate it over that three-year period. If you owned the building, you would have to depreciate that wall over your commercial property's 39-year life. The ability to accelerate depreciation significantly increases your tax deductions.

Moving Expenses

One of leasing's biggest advantages is its flexibility. When you don't own a building, it's easy to change spaces to suit your business' needs. All of your moving expenses are completely tax deductible as regular business expenses. This helps to defray the cost of the move, and makes it easier to have space that is responsive to changing markets and changing business objectives.