When Design Becomes a Write-Off: How Your Business’ Interior Build-Out Can Be Tax-Smart
If you’re opening or renovating a café, boutique, or most brick-and-mortar businesses, you already know how quickly design and construction costs add up. Every fixture, finish, and lighting choice feels like a big decision.
The good news is that many of those exact costs can also work in your favor at tax time. When planned strategically and appropriately documented, interior improvements often qualify as legitimate business deductions.
That said, this article is not tax advice. Every project and every business is different. The information below is for general education only. You should always confirm every detail directly with your CPA or tax professional before taking any deduction.
Why Design Costs Can Count as Business Deductions
From the IRS’s perspective, an expense is deductible if it is “ordinary and necessary” for your industry. For brick-and-mortar businesses, that can include the work that makes your space usable, compliant, and aligned with your brand. This deduction may cover everything from layout and lighting to built-ins, signage, and furnishings.
When these costs directly serve your business operations rather than personal use, they can often be deducted or depreciated over time. How that is applied depends on your lease, your accounting method, and how your CPA classifies each expense.
Understanding Leasehold Improvements
One of the most significant opportunities for small business owners comes from leasehold improvements, which are the permanent changes you make inside a rented commercial space to make it functional for your business.
A simple way to think about it is this:
If you could turn your building upside down, everything that stays attached is a leasehold improvement. Everything that falls out is not.
Walls, flooring, lighting, electrical wiring, plumbing, HVAC systems, built-in counters, and shelving all qualify as leasehold improvements because they become part of the building once installed.
On the other hand, movable furniture, artwork, signage, or portable equipment—the things that would “fall out”—are typically treated as separate business assets under furniture, fixtures, and equipment (FF&E).
Only your CPA can determine how each cost should be categorized. Still, understanding this general distinction can help you plan your build-out with greater clarity.
How Leasehold Improvements Work at Tax Time
In the past, leasehold improvements had to be depreciated over nearly 4 decades, the same schedule used for entire buildings. Under current tax law, however, most interior improvements now qualify as Qualified Improvement Property (QIP). These improvements can be depreciated over 15 years and, in many cases, written off more quickly through bonus depreciation or Section 179 expensing.
This change means you may be able to deduct a significant portion, or sometimes even the full amount, of your interior build-out in the year it is completed rather than spreading that deduction over decades.
For example, if you invest $120,000 in interior construction and finishes, your accountant can determine which components qualify as QIP and whether they are eligible for accelerated deductions. Even when full expensing is not possible, a 15-year schedule is still a substantial improvement over the old rules.
The specifics depend on your individual tax situation. It is essential to have your CPA review your contracts, invoices, and improvement list before filing.
Why Good Design Documentation Matters
Detailed documentation does more than guide construction. It also supports your financial records. Drawings, finish schedules, and specifications prepared by a licensed interior designer can help you clearly identify which expenses were for improvements versus furnishings, signage, or general operations.
That clarity makes it easier for your CPA to properly categorize expenses and determine which ones qualify as leasehold improvements, equipment, or deductible business costs.
Examples of Deductible or Depreciable Costs
Interior construction and finishes, lighting systems, flooring, and built-ins are often included in leasehold improvements.
Furniture, fixtures, and equipment (FF&E) such as counters, tables, shelving, or point-of-sale stations are usually capital assets that may qualify for Section 179 or bonus depreciation.
Design fees, permitting, and engineering or architectural services can generally be deducted as professional costs or capitalized with the project.
Routine maintenance or minor repairs, such as painting or replacing light fixtures, are typically deductible in the year they are performed.
Exactly how each of these items is treated depends on your business structure and accounting method, so your CPA should always make the final determination.
Why Working with a Licensed Designer Helps
A licensed interior designer ensures that every design and construction decision — from layout and materials to finishes and fixtures — is code-compliant, cohesive, and well-documented. That documentation supports a smoother build-out and provides a clear record of improvements for your accountant to review.
Proper Design Studio helps small business owners plan and execute spaces that are buildable, compliant, and operationally efficient. While we do not provide tax guidance, our documentation is organized so your CPA can easily identify what was installed and when, which saves you time during tax season.
Common Questions
Can I deduct improvements if I do not own the building?
Often, yes. Tenants can depreciate leasehold improvements they pay for, even if the landlord owns the property. Your CPA will confirm how that applies to your lease.
What happens if I move out before the lease ends?
You stop depreciating once the space is no longer in use, but deductions already taken remain valid.
Do aesthetic upgrades count?
They can, as long as they are part of your permanent build-out and directly support your business operations. Verification should always go through your CPA.
Why This Matters
Your interior build-out is not just a design project. It is a business investment that shapes how customers experience your brand and how your team operates day to day. With careful planning and proper documentation, it can also bring measurable financial benefits.
The details matter. Always review every expense and assumption with your CPA before claiming deductions. They will help determine what qualifies under current tax law and how to document it correctly.
By pairing thoughtful design with informed financial verification, you can create a space that is functional, on-brand, and structured to support your long-term success.
