By Alejandra Zilak

enjamin Franklin summarized the undeniable weight of taxation by saying, “In this world nothing can be said to be certain, except death and taxes.” We all know we are required to pay them, so we do, but it behooves everyone to lower those liabilities by using all available U.S. Tax Code statutes to our advantage.

Warren Dazzio is the executive vice president of sales at CSSI – Cost Segregation Services, Inc., an tax consultant firm that specializes in real estate and business taxes, and he is happy to provide general information self-storage investors should be aware of to maximize their tax savings.

There are plenty of tax deductions that are common knowledge, such as business expenses, retirement contributions, qualified business income, and any applicable tax credits, to name a few. But there are some commonly overlooked ones that may be costing self-storage investors a lot of money.

When discussing this issue, Dazzio immediately mentions a laundry list of deductions. “The Section 179D energy efficiency deduction, bonus depreciation tied to qualified improvement property, cost segregation, and partial asset dispositions—that last one is often missed. When you throw something in the dumpster, like roll-up doors that aren’t fully depreciated, you can expense the remaining tax life of that asset.”

Dazzio gets very specific when discussing the role of depreciation in reducing tax liability. “Depreciation can reduce your taxable income by roughly 8 percent to 10 percent per million dollars of purchase price,” he says. “For some investors, that’s enough additional capital to help fund the acquisition of their next facility.”

In addition, he stresses the importance of being mindful of all related deductions. “Any time you buy, build, renovate, or make an improvement, there are additional deductions available. For example, bonus depreciation and Section 179 expensing are two of the most powerful tools.”

Bonus depreciation refers to a tax incentive that allows businesses to deduct a significant portion of an asset’s cost in the first year, instead of spreading out the deduction across multiple years, but it can only be used in certain circumstances. “Bonus only applies to asset classes with a life of 20 years or less,” Dazzio states. “A building itself is a 39-year asset under the IRS code, so you can’t apply bonus directly to the building as a whole, but once you break the building into shorter-lived asset classes through a cost segregation study, bonus becomes available.”

A cost segregation study is an IRS compliant strategy in which business owners categorize components of their property that can depreciate over a shorter timespan than the 39-year standard. “Things like doors, security systems, and hallway systems are five-year assets,” says Dazzio. “Landscaping, fencing, signage, and parking lots are 15-year assets. A cost segregation study allows you to access bonus depreciation on 28 percent to 45 percent of the total building cost when it comes to self-storage.”

Meanwhile, Section 179 expensing refers to deducting the full purchase price of qualifying equipment, up to $2.5 million; and the amount allowed as a deduction cannot exceed the aggregate amount of taxable income of the taxpayer for that taxable year.

The type of facility also plays a role in uncovering additional tax deductions. Dazzio points out that climate-controlled self-storage facilities rank among the highest of any asset class for accelerated depreciation, with 35 percent to 40 percent or more of the building costs potentially captured in the first year. “Non-climate-controlled facilities are right behind them,” he says. “Even without climate control, a facility owner can typically accelerate 28 percent to 29 percent of the building cost as a tax benefit in year one.”

The adage is true: You have to spend money to make money; and since time immemorial, business expenses have been the tried-and-true strategy to lower tax liability. “The tax code is very favorable to storage owners,” says Dazzio. “You just have to know where to look. There are several safe harbors that allow owners to expense items as repairs that many people assume need to be capitalized. These fall under what’s known as the repair regulations, which have been part of the tax code since 2014.”

Officially known as the IRS Tangible Property Repairs Regulation, this law allows owners to deduct all the ordinary and necessary expenses incurred during that taxable year, including the costs of certain materials, repairs, and maintenance.

“One of the most underutilized deductions is the routine maintenance safe harbor,” Dazzio says. “If you can reasonably expect to perform a repair more than once within a 10-year period, you may be able to expense it.” As an example, he shares the story of a storage owner who had recently acquired two facilities and was planning to spend $200,000 painting them. “When I asked him how often he expected to repaint, he said about every 10 years. Under the routine maintenance safe harbor, he could expense that entire amount, because he could reasonably expect to incur it more than once in a 10-year window.”

Another useful provision is sometimes called the one-third rule. “If you have 100 doors and you replace fewer than a third of them at one time, you may be able to expense those replacements as repairs, rather than capitalize them.”

What if you’re past the point of simply replacing doors? If you’re getting ready to sell to capitalize on your investment, you’re likely thinking of 1031 exchanges. Whenever a property owner sells a business or investment property that results in a gain, they generally have to pay taxes on that gain. However, Section 1031 of the U.S. Tax Code allows them to postpone paying taxes on that gain if they reinvest the proceeds in a similar property.

“A 1031 exchange is a solid strategy for deferring taxes, and it can be used alongside most of these other strategies,” Dazzio adds. “That said, you can often accomplish the same result with a cost segregation study and avoid the pressure of 1031 deadlines altogether. Rather than completing a 1031 exchange, some facility owners simply perform a cost segregation study on their next acquisition. That study can generate enough deductions to help offset the capital gains from the sale of the prior property.”

2025 brought with it the Big Beautiful Bill (BBB), and several new tax laws to boot. “It was generally positive for real estate,” says Dazzio. “It kept tax rates from increasing, raised estate tax exemption values, and brought back 100 percent bonus depreciation, which had been set to phase out by 2027. These changes create a more stable and favorable framework for long-term planning.”

That said, there is one provision storage owners should look at closely to determine whether they qualify. “The Section 179D Energy Efficiency Deduction is different from Section 179 equipment expensing,” Dazzio says, mentioning that the 179D deduction applies to new construction or significant renovations involving lighting, HVAC, and the building envelope. “When construction exceeds the current energy code requirements, the government rewards that efficiency with deductions of up to $5.81 per square foot,” he says. “This is a meaningful benefit, but the Big Beautiful Bill legislation terminates it for projects where construction begins after June 30, 2026. So, if you have a qualifying project in the pipeline, this is worth reviewing now.”

He also cautions self-storage investors to be careful when reducing tax liability through bonus depreciation. “One of the most impactful changes in the BBB for storage owners is the return of 100 percent bonus depreciation. It’s worth clarifying what that means, because there’s such a common misconception. It doesn’t mean you can deduct 100 percent of the purchase price of a building. A reasonable rule of thumb is that around 40 percent of the building’s costs can be reclassified into shorter-lived asset categories.”

The great news is that the environment looks favorable for continued growth; and Dazzio advises lining up an effective team of tax professionals, including a specialty tax consultant, to build a long-term strategy that captures every available benefit as your portfolio grows.