15 BEST Things To Do in Corfu, Greece


We’ve been to Greece quite a few times, but we wanted to go somewhere new for our 10 year anniversary together. We decided on Corfu, and it ended up being a great place for the celebration!

A gorgeous lush interior, pristine coastline, unique rock formations, and a romantic capital city…all this and more can be found on Corfu Island. This a destination that truly surprised us during our trip to Greece. There are endless things to do in Corfu, you’ll never be bored.

When to Visit Corfu

The best time to visit Corfu is from late May through early October, but if you ask us, mid-May to June and early September are the sweet spot.

In May, daytime temperatures are often around 22-26°C. In June, temperatures hover around 25-30°C, the sea is warming up, and you can spend long, lazy days on beaches that still feel uncrowded.

things to do in corfu island greece
The weather in May was great when we were there!

The evenings are warm, the island is lush and green, and because the season is only just ramping up, you get that feeling of having arrived before the masses!

September is equally fantastic, with warm sea temperatures, sunny days, fewer crowds, and a more relaxed atmosphere after the summer rush.

We visited Corfu in the shoulder season (May) which runs from April-May and October, those can be beautiful times to visit, less crowded, and cheaper, but weather can be less reliable.

By mid-October many tavernas and seasonal businesses begin closing down.

July and August are super hot, with temps into the mid-thirties, along with bigger crowds and higher prices, so while they’re great for peak summer vibes, and beach days, we’d choose May/June or September every time.

Where to Stay in Corfu

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We loved our stay at Wyndham in Dassia

There’s really no bad area to stay in Corfu – there’s something to offer on every part of the island. We stayed in 2 places during our week-long trip to Corfu: Marbella Hotel (Agios Ioannis) and at the TRYP by Wyndham (Dassia).

Here’s a breakdown of what other areas of the island have to offer:

  • Corfu Town: Authentic culture and a wide selection of restaurants and attractions
  • Arillas: Natural beauty and a spirituality scene
  • Paleokastritsa: Gorgeous views, bays, and hidden beaches (and a monestary!)
  • Kavos: Nightlife, beaches and watersports
  • Kassiopi: Upmarket accommodations with luxury options
  • Sidari: Great for families and couples

How to Get Around Corfu

Seeing all of the sights and beaches in Corfu is best done by renting a car. We rented a car for our week-long trip and it was the best way to explore! Find the best rates here.

If you’d rather not drive, Corfu’s public bus network connects many popular areas with Corfu Town and can be a good budget-friendly option, but, Corfu Town in the historic center is best explored on foot.

Corfu is the northernmost (and most popular) of the Ionian Island chain, and it’s actually really close to mainland Greece, and Albania – it’s actually just a quick 40-minute ferry ride between the two! Check out FerryHopper for times and prices.

Quick Answer: Top 5 Best Tours & Activities in Corfu:

Best Things To Do in Corfu

what to do in corfu town

Due to its proximity and history with mainland Europe, Corfu Island was actually one of the first Greek Islands to experience mass tourism.

Because of this, Corfu has numerous accommodation options, many restaurants and bars, and a more cosmopolitan feel than many other Greek islands.

We spent a week in Corfu (including our 10 year anniversary) and had many unique experiences along the way. This is one of the top places to visit in Greece for good reason!

Here’s my list of the 15 best attractions, places to visit, and things to do in Corfu.

1. Rent a Boat Independently (one of the most unique things to do in Corfu)

things to do in corfu greece highlights of travelling to corfu
Renting a boat is a great way to see the coastline of Corfu

Did you know that on many of the islands in Greece, you can hire a boat yourself and rip around the coastline? Even if you don’t have a boat license?!

If you’re looking for things to do in Corfu that are unique and fun, renting a boat is definitely it.

We first heard about this when we were on a tour with Luxury Island Events on Zakynthos Island. This is one of the best things to do in Zakynthos, and while we didn’t have a chance to rent one while we were there, we knew we had to give it a try somewhere else in Greece.

Corfu Island The BEst Island In Greece
We had so much fun renting a boat by ourselves in Corfu

For our 10-year anniversary, we did just that.

We drove to the northeastern side of Corfu and met up with the rental company. After a very casual signing of documents and a once-over of the boat, we were set. The boat was 45 horsepower and could have fit six people, four comfortably.

Whizzing along the beautiful coastline, stopping off at seaside taverns for food and drinks, and mooring up at secret coves to jump in the Ionian Sea, how fun is that?! This is definitely one of the top things to do in Corfu for couples, or friends.

things to do in corfu greece renting a boat highlights of greece
Pulling up to private bays is the best part about hiring your own boat!

Hiring a car is a must for getting around the island and seeing the interior, but hiring a boat is an excellent way to explore the coastline. Learn more about being your own captain for the day and renting a boat here.

  • You can book your own boat here 
  • We paid €80 for the boat in the offseason/shoulder season (would be more like €130 in the high season)
  • Boat gas for a day of driving cost us €40.
  • Make sure there are life jackets on board and you will need your own food and water.

Don’t Forget Your Travel Insurance For Corfu!


Make sure you have travel insurance for your trip to Corfu. It’s the one thing you should always pack. Safety Wing is a great option for travelers, adventurers, and remote workers.

2. Visit Corfu Town

things to do in corfu greece visit corfu town
Strolling through the streets of the UNESCO-listed Corfu Town

This UNESCO-listed town is absolutely beautiful. Due to being under Venetian rule from the 14th century to the late 18th century, this stunning architecture can still be found on this island – especially in the capital of Corfu Town.

With Venetian-style buildings, two fortresses, narrow little lanes, and numerous restaurants, Corfu Town is a place you’ll want to spend some time exploring.

travel to corfu things to do in corfu greece

We visited twice, both times around sunset when the temperature was a bit cooler and the lighting was incredible!

Wander by pastel-colored homes with wrought-iron balconies and wooden shutters. Make your way through character-filled, cobbled streets… streets so narrow that laundry can be hung on a line strung between two adjacent houses.

I recommend visiting both during the day, and in the evening to see the town in two different lights. It’s one of the most romantic places to visit in Corfu – we loved wandering around and then stopping to have a glass of wine. Our favourite spot was Salto, they had excellent food and wine selection!

salto restaruant corfu
Don’t miss Salto – we loved the service, food and wine here

There is a highly-rated walking tour you can join to experience more of Corfu Town. You can join in the morning or in the evening. The tour includes an English-speaking guide, visiting the important sites in town, food tastings, a drink, and a full meal as well. Click here to learn more and book your ticket – you can book now and pay later, plus there’s cancellation up to 24 hours before the tour!

Another option is this walking tour with a guide that includes a glass of wine at the end! This trip is one of the best things to do in Corfu old town.

☞ SEE ALSO: Weather in Greece – When Is The Best Time to Visit?

Notes About Visiting Corfu Town

  • Parking can be hard to find in Corfu Town. Park just outside of the town itself, and walk in.
  • We highly recommend eating & drinking at Salto Wine Bar. Greek wines are on offer here (€20 / bottle, €5.50 / glass). Two appetizers & two mains cost us €38. Food, drinks and service are excellent.
  • Wander around the lanes and get lost. Visit the sights, but spend time just meandering around, this is one of the best things to do in Corfu town for sure.
  • Entrance to the Old Fortress costs €10. Wear sturdy shoes and note that there’s not much shade.

3. Stay in Beautiful Accommodation

where to stay on corfu island greece marbella corfu
Our beautiful room at the MarBella Corfu, plus the outdoor pool and meal at the Platea Greek onsite restaurant

It’s a bit weird to have accommodation as a highlight of an island, but there are some gorgeous options available on Corfu. We stayed in two beautiful properties and can recommend them both, for different reasons. 

Learn about where to stay in Corfu in our complete guide. 

MarBella Corfu is a proper 5-star, luxury resort, complete with all-inclusive menu plans, four a la carte restaurants, four bars, and a buffet-style restaurant serving up fresh food for breakfast, lunch, and dinner.

Best Hotels & Apartments in Corfu:

Set just steps from the Agios Ioannis Peristeron beach, near the south end of Corfu, this is an ideal location for exploring this half of the island.

MarBella Corfu truly is a luxurious accommodation and if a resort holiday is what you’re after, then this is the place for you. We spent four nights here, but only dined at the restaurant two times – there were too many local restaurants that we wanted to check out!

The welcome drink and complimentary wine & fruit are a nice touch, the building itself is modern, and the staff here are incredibly helpful and friendly. It was the perfect place to treat ourselves for our 10 year anniversary.

travel to corfu greece stay at corfu palma boutique hotel
A warm welcome from the staff at Wyndham

On the northern end of the island, we stayed for two nights at TRYP by Wyndham Corfu Dassia (formerly Corfu Palma Boutique Hotel), and highly recommend it.

With just four floors, this low-rise hotel has an intimate feel. We were staying on the 4th floor in the Superior Design Suite, which was absolutely stunning. The rooms are spacious, bright and the modern decor is exquisite.

The hotel offers a gym and a spa, as well as a large outdoor pool. The only downside is that it’s not located directly on the beach, but just a few steps away. The staff here are friendly and the manager, Spyros, will make you feel very welcome!

We thoroughly enjoyed our stay at this boutique hotel, and recommend it based on the modern room itself, the lovely staff, the delicious food, and the amenities on offer.

travel to corfu greece where to stay corfu palma boutique hotel
Our beautiful room at the Corfu Palma Boutique Hotel

Since there are so many things to do in Corfu, and since the island is pretty big, I suggest splitting your time between the north and the south, if you can.

That way, you can use your base in the north to explore nearby sites, then switch to your hotel in the south and check out that area of the island. Otherwise, you may find yourself driving a lot. The two hotels I listed above worked out well for us to do just that.

If you’re interested in staying in a small apartment or guesthouse (rather than a hotel or resort) during your trip to Corfu Island, click here to compare prices and search through numerous options on Booking.com.

4. Join an Olive Oil Tasting & Tour

things to do in corfu travel to corfu governor olive oil
Sampling the delicious premium olive oils at The Governor Mill

There are over 4 million olive trees on Corfu Island, 95% of which are lianolia variety. There are a few products that Greek people have been using throughout the ages, and olive oil is one of them. It has always been a big part of their diet, traditions, and history.

The Governor is a 5th generation, family-run establishment here on the island. It’s one of the most awarded premium olive oils out there.

We joined this highly-rated day trip and learned all about olive oil. We spent a lazy afternoon indulging in some olive oil and bits of food and enjoyed the company of the owners of The Governor. The passion these two brothers have for their family company is inspiring.

the olive oil tasting at Governer is great

The flavour of the olive oil is exceptional and the health benefits are incredible! We really enjoyed meeting the Dafnis family, learning about the product, and of course, tasting it. 

Olive groves provide jobs and food for the people and they have for many years. Learning about the production of olive oil is one of the most important things to do in Corfu, and Greece as a whole.

5. Learn About Bees and Honey Production

things to do in corfu travel to corfu greece beekeeping and honey
Natural beauty products are just some of the many products on offer at Mr. Honey’s bee shop

Another Greek product that has been used for centuries is honey, both for enjoyment as well as curing ailments.

Hippocrates said that this Nectar of the Gods “cleans sores and ulcers, softens hard ulcers of the lips, heals carbuncles and running sores”. Aristotle believed that honey prolonged life.

We had heard about “Mr. Honey” (whose real name is Panagiotis Vasilakis) from Spyros, the manager at Wyndham hotel we were staying at.

Arriving at the office of Mr. Honey, we met a soft-spoken, chilled-out man who told us his story of how he left a high-stress career in Athens for beekeeping in Corfu…a trade he knew nothing about before arriving here!

The organic honey at “Mr. Honey’s”

We met his bees, learned about the process of collecting the honey, and were shown many of the natural products he makes.

This is one of the more unique places to visit in Corfu, and one of the top things to do in Corfu for families. Don’t miss a day with Mr. Honey. Panagiotis – he’s passionate about beekeeping and is keen to share his knowledge about bees and honey with you.

The honey shop is called MKV – Melissokomiki Kerkyras Vasilakis, which is located here.

6. Visit an Ancient Monastery

things to do in corfu View from the Paleokastritsa Monastery

There are over 250 churches and monasteries on Corfu Island! A couple of the standouts are The Vlacherna Monastery and the Monastery of Paleokastritsa. This private day trip takes in these monasteries and many more highlights of Corfu.

Best Monastery Tours in Corfu:

When driving south from the airport, it would be hard to miss the Vlacherna Monastery, which sits out on the water, on an island of its own. The island is actually connected to the mainland by a stone bridge that crosses the bay.

The chapel was built in 1685 and actually, this was once a nunnery monastery. These days, Vlacherna Monastery is a quiet place with cypress trees surrounding it, and dogs and cats roaming around.

Fun fact, the For Your Eyes Only James Bond film had a scene set here. The monastery is one of the best places to see in Corfu.

Nick heading up to the Paleokastritsa Monastery

The second must-see monastery is Paleokastritsa – we went here on our first day on the island.

The location of this religious site is stunning. Set on a lush hill above the beach with the same name, and surrounded by sheer cliffs and pretty bays, a visit to this monastery (which is dedicated to the Virgin Mary) is a must.

Epic view from Paleokastritsa

Paleokastritsa is still operating as a monastery today, and you may see a monk or two pass by during your visit. It’s important to dress appropriately and respectfully when entering the complex.

This is one of the popular places to see in Corfu, there will probably be group tours here. But regardless of the crowds, it’s worth a visit. Click here to open the GoogleMaps location of Paleokastritsa. Click here for Vlacherna Monastery.

7. Chill Out Beachside at Paleokastritsa

Paleokastritsa beach places to visit in corfu

While you’re in the area visiting the monastery, make sure to check out the beaches and town of Paleokastritsa. There are 6 stunning bays here, which are surrounded by olive and cypress trees.

Best Beach Tours in Corfu:

This is the perfect spot for spending the afternoon swimming, or just lazing on the beach. You’ll find numerous tavernas and restaurants here as well, including nearby Akron Beach Bar, which we loved – it has a great setting for a meal or drink.

You’re in Greece, so it’s no surprise that relaxing on a beautiful beach is one of the top things to do in Corfu. In fact, the main beach of Paleokastritsa itself is known for being one of the best beaches in Greece.

8. Sip on Sunset Cocktails

things to do in corfu 7th heaven restaurant

Located on the very northwestern tip of Corfu Island, you’ll find 7th Heaven restaurant. With expansive views from atop a cliff out to the Ionian Sea, this is the ultimate spot to watch the sun go down.

Best Sunset Tours & Activities in Corfu:

It’s mostly known for being a place to grab a drink with sunset, but they also have food available. Cocktails go from around €7 and if you don’t have your own wheels, a taxi from Sidari to here is around €9.

The drinks may not be the cheapest, but you’re paying for the setting. Click here to see the Google Maps location of the restaurant.

If you’d rather get some exercise, enjoy the amazing sunset, and then head for a cocktail, check out this hiking trip with a guide. After a leisurely hike through beautiful villages and scenery, you’ll enjoy the incredible sunset from Angel Castle. Learn more here.

9. Swim at the Canal d’Amour in Sidari

things to do in corfu sidari
Swimming around the cliffs at Sidari is a must!

While you’re on the northern end of the island, make sure to visit the Canal d’Amour, or Love Canal. The rock formations around this area are colourful, crumbly, and very unique.

We chilled out on the beach, and swam in the clear water for a few hours. There’s also a canal here, which leads under the cliff. It’s said that if you swim through, you’ll get married soon – hence the name “Canal d’Amour”. Whether or not that’s true, it’s still one of the most popular things to do in Corfu.

While swimming through the canal, you won’t be fully submerged in water and will be able to breathe the whole time, so don’t worry! Plus, the canal isn’t very long.

Ahh, so fun swimming here! We had amazing weather in May

On a windy day, the waves can be a bit rough here if you’re planning to take a boat around the coast, but being at the beach is fine. 

You’ll find numerous hotels, restaurants, and tavernas in the town of Sidari, making this the perfect spot to spend the afternoon, or longer.

Best Tours & Activities in Sidari, Corfu:

10. Go Mountain Biking Around Corfu

We didn’t have a chance to do this, but try to peel yourself away from the beautiful beaches and romantic towns to get some exercise by bike!

Renting a mountain bike to explore either independently, or on a tour is an excellent way to see the off-track interior of the island. Regardless of whether you’re a beginner or more advanced, there’s a route for you.

Check out the guys at The Corfu Mountain Bike Shop to rent a GIANT bike. If you’d rather have a bit of assistance when riding, you can rent an Electric Fat Bike as well! Check out Corfu Fat Bikes for details.

Best Bicycle Tours & Activities in Corfu:

11. Indulge in a Decadent Meal

where to eat on corfu island greece etrusco restaurant
Dining at the famous Etrusco Restaurant, by Michelin Starred Chef, Ettore Botrini

For our special anniversary meal, we went to Michelin Starred chef, Ettore Botrini‘s restaurant. He’s an Italian Corfiat, with three restaurants in Greece – Corfu, Rhodes, and Athens. 

If you’re looking for a fine dining experience, make sure to visit Etrusco Restaurant in the town of Dassia – which is listed as one of the world’s 50 best

Trust me, this highly acclaimed chef knows presentation! Each and every dish we had came out perfectly manicured, with a story behind each plate. The outdoor dining area is surrounded by trees and pretty pink bougainvillea flowers.

Celebration dinner at Etrusco restaurant

Plus, the kitchen is behind a large window, so you can watch all of the action unfold while you wait for your food.

You can order a la carte, or choose from one of two set menus: My Origins or Akron Aoton.

Both have the option of including a wine pairing and go for around €130 for 7 – 12 courses, so it’s more of a “special occasion” kind of place and we enjoyed our meal for our anniversary.

Click here to find Etrusco Restaurant on Google Maps, and click here to make a reservation and see the menus on offer.

12. Go Sailing (one of the best day trips from Corfu)

things to do in corfu sailing

We rented our own boat while in Corfu, so we didn’t end up doing a sailing trip – we had to save something for our next trip!

With Corfu’s location, it’s no surprise that there are some amazing sailing and boat day trips you can do! Cruise over the crystal-clear water on your way to nearby Antipaxos & Paxos, or sail on over to the Sivota Islands.

The day is spent gawking at the scenery, swimming in the pristine water, and visiting small villages. Getting out on the water and visiting these islands and hidden coves is definitely one of the best day trips from Corfu. 

There are quite a few tours you can join, but this one to Anitpaxos and Paxos is very highly rated and at around $45, it’s a steal. If you’d rather check out the Sivota Islands and the old town of Parga, this trip is also very highly rated and is around $45 as well.

Finally, if you’d like to have a sailboat to yourself and enjoy a private day on the water, this trip is a must. The day is fully customizable and is perfect for a family or group of friends. Snacks, beer, wine, and water are all included as well. You really can’t go wrong. Click here for more details.  

13. Volunteer With Donkeys

If you have more time on the island, why not spend some time giving back?

One of the best things to do in Corfu with animals is to volunteer to take care of abandoned, abused, old, or injured donkeys. Give them some love, groom them, and even take the donkeys for a walk.

Surrounded by olive trees and the beautiful Corfu mountains, the setting of this sanctuary for donkeys is lovely. Click here to learn more about visiting the shelter – one of the more rewarding and unique things to do in Corfu.

14. Join a Food Tour

Feta Cheese Olive Greece food tour in corfuGreek Food best food countries

I’m still thinking about our meals in Corfu! Greek food is definitely one of my favourites and you’ll be spoiled for choice in Corfu.

Foodies, this one is for you! Spend the day walking around beautiful Corfu Old Town, while learning about the history of the island, and sampling some of the local cuisine. 

On this fun tour, you’ll meet up with an English-speaking guide and wander around the old town. The highlights and stops include the Palace of St. Michael and St. George, hidden corners and squares, the old city walls, fountains, the Church of St. Spyridon, and more. 

Throughout the 3-hour trip, you’ll stop to eat a couple of times. The tour includes a local breakfast and a sit-down lunch at the end of the walking tour. Find out more and book your spot here.

Best Food Tours in Corfu:

15. Rent a Scooter

scooter in rhodes greece

We rented a car and a boat while in Corfu, but lots of people love riding scooters – do as the locals do and enjoy the day on two wheels.

There are a couple of options for renting a Vespa scooter in Corfu. You can either hire one for yourself privately and see all of the best places to visit in Corfu on your own or, you can join a private day tour so you don’t get lost!

Best Scooter Tours & Rentals in Corfu:

16. Bonus! Go to Albania

Albania Travel
We had a blast exploring Albania

Another great activity during your stay in Corfu is to take a day trip to a nearby country. Did you know you can take a boat from the island of Corfu to the country of Albania?

We spent 10 days travelling around Albania and had such a great time, it’s definitely worth a visit from Corfu!

You can either take the ferry and head over there yourself, or join a tour. On this fun day trip, you’ll visit the UNESCO city of Butrint, the beautiful seaside city of Saranda, the Venetian Tower, the Temple of Asclepius, and much more.

Everything is included on this day trip, including a professional guide, bus tickets, boat tickets, entry to museums and UNESCO sites, and a tasty lunch in Saranda. Don’t forget your passport! Click here for details.

What to Do in Corfu: FAQ’s

Here are answers to some questions that travellers have about visiting Corfu.

Is Corfu Greece worth visiting?

Corfu is worth visiting. It’s one of the most popular islands in Greece for its beautiful coastline, cosmopolitan vibe, mountains and fun nightlife. Whether you have a long weekend, a week, or just a day trip from the cruise ship or nearby island, add Corfu to your list.

What is Corfu known for?

Corfu is known for its sandy beaches, cosmopolitan feel, amazing restaurants, stunning landscapes, and fun nightlife. And, of course, the Channel of Love!

How many days are enough in Corfu?

Two days is the minimum time you should spend on Corfu Island. It’s quite a big island, so you’ll want to take a day tour to see as much as possible. Ideally, you could spend a week here!

Do you need to rent a car on Corfu?

If you want to explore off-track places in Corfu, you should rent a car. We like the freedom to move around at our own pace, so we chose to rent a car. Otherwise, if you plan to stick to a nearby beach, you can get around on foot. There are buses available too, and day tours you can take that provide transportation.

In Conclusion

With so many islands to visit in Greece, it can be hard to decide which one to choose. If you’re interested in beautiful beaches, excellent restaurants, religious sites, culture & history, and stunning accommodations, then Corfu Island is for you.

travel to corfu greece rent a boat
Renting a boat for our anniversary was such a great way to spend the day in Corfu

And, since Corfu is so close to mainland Europe, getting here is easy.

You can take a quick flight from anywhere in Europe, with a short layover in Athens, or if you’re flying from North America, you’ll need to stop over in Europe before continuing on to Corfu. There are many ferry routes all around Greece, search for boats to Corfu here.

Check out Aegean Airlines for flights, or search engines such as Expedia.com and Google Flights. For ferry routes, have a look at Ferry Hopper. Once you’re in Corfu, I recommend renting a car to get around and explore at your own pace. We always rent cars in Greece and it really makes the trip that much more special. Find the best rates here. Enjoy Corfu!

Check out our Travel Videos of Corfu

Thank you to Discover Greece for assisting us with our trip to Greece. As always, all thoughts and opinions remain our own. Some of the images in this article are courtesy of Shutterstock.

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When a taxpayer has a capital outlay, they generally want to deduct the expense when the money leaves their bank account or when the liability is incurred. However, the accounting matching principle dictates that expenses should be deducted when the related income is received. The matching principle aligns the income and expense recognition. Our income tax rules generally adopt this accounting principle.

The timing issue is disfavored by taxpayers who make substantial capital investments. The taxpayer must pay out funds but cannot take an immediate tax deduction, while still being required to pay income taxes despite having a future tax deduction on the books. This results in a pay-the-IRS-now and recognize-your-tax-benefit later scenario. This issue is particularly problematic for investments in long-term assets such as real estate investments and heavy equipment.

Just about everyone favors immediate expensing. The U.S. Treasury Department has long advocated for a consumption tax system that would essentially allow for immediate expensing of capital investments. Treasury has made incremental progress toward this goal, such as the 2014 tangible property regulations that expanded opportunities for component depreciation of real estate. Similarly, Congress has shown increasing receptivity to immediate expensing, though stopping short of a full consumption tax system. The Tax Cuts and Jobs Act of 2017 represents a compromise position, providing for bonus depreciation on certain real estate assets while maintaining the basic framework of capitalization.

This framework leaves taxpayers with several options for immediate expensing for certain types of expenses, but not for others. The recent Weston v. Commissioner, T.C. Memo 2025-16, case provides an opportunity to consider the question of when taxpayers must capitalize rather than deduct certain real estate-related expenses.

Facts & Procedural History

The case involves a commercial real estate agent in California. He began investing in single-family home renovations in Indiana in 2015.

Under an arrangement with his partner, the taxpayer provided funding to acquire and renovate properties. The partner managed the work locally. They both verbally agreed to split profits after the taxpayer recouped his investment plus an 8% return.

In 2016, the taxpayer also began funding a demolition and excavation business run by the partners. This business contracted with Indiana cities for demolition and lot remediation services. The partners had a similar verbal profit-splitting deal for this business.

Through 2017, the taxpayer continued sending money to fund both businesses based on the partner’s periodic funding requests and invoices. These “Indiana Payments” were more than $2.1 million by the end of 2017.

The taxpayer’s confidence in the partner eventually eroded as little progress or financial return materialized. However, he continued funding the demolition business into 2018 and even bought several Indiana properties from the partner in early 2018 for over $700k. After the partner disappeared, the taxpayer attempted to salvage the renovation business. He ended up selling most of the properties in 2018-2019 for a net loss.

On his 2017 tax return, the taxpayer claimed the $2.1 million Indiana Payments as a business loss deduction. The IRS audited the return and disallowed the deduction. The dispute ended up in tax court.

Immediate Expensing Options

The tax code provides several ways to immediately expense real estate-related costs. These provisions usually require some tax planning to benefit from, but the appropriate provision depends on both the nature of the expense and the character of the taxpayer’s real estate activities.

Section 162 serves as the primary authority for deducting ordinary and necessary business expenses, while Section 212 provides parallel treatment for investment activities. Section 179 offers an elective immediate write-off for certain qualifying property, and Section 179D allows deductions for energy-efficient commercial building improvements. There are other provisions that can also apply, but these are the primary tax rules that allow for immediate expensing for real estate expenses.

Section 162 permits immediate deduction of ordinary and necessary business expenses, encompassing routine operating costs such as repairs, maintenance, and utilities, provided these expenses do not materially add to the property’s value or useful life. For taxpayers whose activities do not rise to the level of a trade or business, Section 212 provides similar treatment for expenses incurred in the production of income, primarily benefiting investors who own rental properties but do not qualify as real estate professionals.

Section 179 allows immediate expensing of qualifying property placed in service during the tax year, though significant limitations apply in the real estate context. The deduction is limited to tangible personal property used in an active trade or business, with most building components excluded, and caps apply. Section 179D provides a specialized deduction for commercial building property meeting specified energy efficiency standards, available to both building owners and tenants who make qualifying improvements.

The nuances of each of these rules is beyond the scope of this article–as we are just noting that the first decision a taxpayer has to make is whether one or more of these provisions apply. Our focus in this article is to consider how these immediate expensing options are essentially taken away by the capital improvement rules. What Congress gives in one hand, it often takes away with its other hand.

Caplitziation and Depreciation or Amortization Limitations

The general capitalization rules under Section 263(a) require taxpayers to capitalize amounts paid to improve a unit of property. The regulations establish a three-part test for determining whether an expenditure constitutes an “improvement” requiring capitalization rather than an immediately deductible expense. An improvement exists if the expenditure results in a betterment, adaptation, or restoration of the property.

A betterment occurs when an expenditure fixes a pre-existing material defect, creates a material addition or expansion, or produces a material increase in the property’s capacity, productivity, efficiency, strength, or quality. For example, replacing a leaky roof with upgraded materials that extend its useful life would constitute a betterment requiring capitalization.

An adaptation arises when the expenditure modifies the property for a new or different use from its intended purpose when placed in service. Converting a residential property into an office building exemplifies an adaptation that must be capitalized. However, minor modifications that do not fundamentally change the property’s use may qualify as deductible repairs.

A restoration exists when the expenditure returns the property to its ordinarily efficient operating condition after deterioration, rebuilds the property to a like-new condition, or replaces a major component or substantial structural part. The replacement of an entire HVAC system, for instance, would likely constitute a restoration requiring capitalization.

Beyond these general rules, specific tax code provisions impose additional capitalization requirements for certain real estate expenditures. For example, Section 280B mandates capitalization of demolition costs into the land basis, regardless of the property’s intended future use. There are even more nuanced rules that govern the treatment of interest, taxes, insurance, permits, environmental remediation, construction period overhead, and property management costs.

This is the framework that taxpayers have to apply. The immediate expensing rules only apply to current expenses, not capital improvements. The distinction turns on whether the expense merely keeps the property in ordinary efficient operating condition, in which case it may be deducted immediately, or whether it materially adds to the property’s value or substantially prolongs its useful life, in which case it must be capitalized. Thus, while routine repairs and maintenance may typically be deducted in the current year, major renovations require capitalization. And then there are more nuanced expenses that one cannot readily discern how the rules apply to, such as standby line of credit fees.

Before moving on, we also note that there are other provisions that can apply even after this expense-vs-capitalization framework that limit otherwise allowable deductions, such as the passive activity loss rules, excess business loss rules, net operating loss rules, hobby loss rules, and others. You can read about these other rules in various posts on our site as we have covered them at length in other articles.

Example of Expensing-Capitalization

This brings us back to this case. In this case, the court had to examine whether the $2.1 million in Indiana Payments could qualify for immediate expensing under any of the discussed provisions, or whether they required capitalization.

The court first considered whether the payments could be deducted as ordinary and necessary business expenses under Section 162. While the taxpayer argued he was engaged in a trade or business, the court found his involvement was more akin to that of an investor. He operated as a passive funding source, rarely visited the properties, and left the day-to-day operations to his partner. The court emphasized that merely managing one’s investments, no matter how extensive, does not rise to the level of a trade or business. This finding effectively precluded any immediate deduction under Section 162.

Similarly, the court found that Section 212 could not salvage the deductions. Even though this provision has a lower threshold than Section 162, applying to investment activities rather than requiring a trade or business, the nature of the expenses themselves still required capitalization. The improvements to the properties were not mere maintenance costs but rather substantial renovations that materially added to the properties’ value.

The Section 179 election was not available because the expenditures primarily involved improvements to residential real property, which is explicitly excluded from Section 179 treatment. The fact that some personal property may have been included in the renovations could not help the taxpayer, as he failed to maintain records adequately distinguishing between real and personal property improvements.

For the home renovation business, the court found the expenses fell squarely within Section 263A’s scope. The Indiana Payments covered direct costs like building materials and labor, as well as indirect costs such as utilities and equipment rentals. Because the properties were held for resale, these improvement costs had to be capitalized into inventory under Section 263A and could only be deducted when the renovated homes were sold. Since no sales occurred in 2017, no deduction was permitted for that year.

The tax court also considered the expenses for the demolition business. As this business did not own the properties it worked on, Section 263A did not apply. However, the court still denied the loss deduction for two reasons. First, some of the expenses may have required capitalization under Section 280B, which mandates adding demolition costs to the land basis. Second, and more fundamentally, the taxpayer failed to maintain adequate records distinguishing between deductible business expenses and capital expenditures for equipment and other assets.

The Takeaway

The case shows both the complexity and importance of properly analyzing real estate-related expenses under the various expensing and capitalization rules. Detailed records that distinguish between potentially deductible expenses and capital improvements are key. Without this type of documentation, taxpayers risk losing deductions even for expenses that might otherwise qualify for immediate expensing, as demonstrated by the court’s denial of deductions for both the renovation and demolition businesses in this case.

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