?Repairs vs. Maintenance

12 Replies

Here's a question that likely only the people that keep their own books or the accountant minded will appreciate.

Do you lump together your repairs and maintenance  costs on your income statement or do you keep them separate line items? 

Repairs : Something breaks, costs of fixing it.  I.e. Something is leaking, plumper fixes it.

Maintenance: Keeping something in working order.  I.e. HAVC pro checks your furnace, replaces filters, etc.

This does NOT include costs that would be capitalized and depreciated.  Replacing a heating system, flooring, building improvements etc.  I'm only asking about costs you will expense during the tax year.

Thanks!  

I like to lump them together, just because! I guess it would give you another level of tracking your investment by separating them. More reporting means you can keep a better eye on what's going on and understand where you're money is being spent in closer detail.

@Charles Press 

I use https://www.rentecdirect.com

It keeps track of each property.  I post expenses and income to the property it belongs too.  I can seperate it in any special category like maintenance or repairs.  This is the first year I'll pass the info onto a CPA, so I'll see how it goes and then determine if I'll continue using it.

Originally posted by @Mehran K. :

I like to lump them together, just because! I guess it would give you another level of tracking your investment by separating them. More reporting means you can keep a better eye on what's going on and understand where you're money is being spent in closer detail.

Was thinking the same thing.  When your operation is small, you can really organize the heck of your data.  The larger you get though, the more cumbersome and time consuming keeping such fine details becomes.

Flip side: If you have a very large business, you can always pay somebody else to break down the expenses.

Originally posted by @Mitch Coluzzi :

Personally, I do not.  I keep a breakdown of cap imps. (by type / unit for individualized depreciation purposes),  maintenance, and change-over costs between tenants.

Mitch, good idea on the record keeping.  I'm surprised at how many sellers don't keep a simple records of repairs and maintenance work for at least 3 or 5 years.  (Or don't want to provide it).  It comes off to me as you're hiding something or you're unorganized and unprofessional. 

I don't consider there to be any difference between maintenance and repairs.  I think they are both treated the same for income tax purposes, so I see no need to separate.

Originally posted by @Bryan L. :

I don't consider there to be any difference between maintenance and repairs.  I think they are both treated the same for income tax purposes, so I see no need to separate.

Bryan, good point.  I was started out keeping them separate.  For my internal tracking.  After awhile, it started to seem like splitting hairs.  Again, the whole, small amount of data, can be more easily organized and arranged.  The bigger it gets the more it seems like busy work.  Thanks for the opinion.   

I keep them lumped together. It's less work. IMHO, The extra work doesn't make a difference in your planning or management and most people who need to look at your P&L's won't care. 

@Charles Press @Bryan L.  

Repairs and maintenance are treated the same, being that they are operating expenses and deductible in the current year. However the IRS issues final regulations in 2013 which make it beneficial for the taxpayer to keep the two activities separate. Repairs are "fixing" while maintenance is "preventative" and not keeping the expenses separated may affect your ability to qualify under the Routine Maintenance Safe Harbor. 

The final regs officially defined a "Unit of Property" (UOP) which essentially intends to make it harder to classify expenses as repairs and rather classify expenses as capital improvements, of which the cost must be depreciated rather than fully deducted in the year incurred. For instance, prior to 2013, an HVAC system was not a UOP and replacing a motor in a broken HVAC system was a "repair" which was fully deductible. Now however, HVAC systems are defined as an UOP and the motor is essential to the operation the the HVAC system, so the motor will now be classified as a capital improvement extending the life of the UOP of which the cost must be depreciated. 

However under the Routine Maintenance Safe Harbor, if after inspecting, cleaning, or testing, you find the motor needs to be replaced and you replace the motor with a comparable one, you will likely be able to classify it as an operating expense and deduct it in the current year. The safe harbor is subject to the Ten Year Rule (expected to perform the maintenance more than once every ten years) and the No Betterments Rule which basically excludes large capital improvements that significantly extend the useful life of the property.

There is a heck of a lot more to it, but in summary, keep your repair, maintenance, and capital improvement expenses in separate buckets and back each up with appropriate reasoning and documentation. It will make your accountant's life easier, which means less billed hours, which means less money you have to pay out. 

@Brandon Hall 

Brandon, thanks for brining up the IRS regs.  I didn't know that what common sense would deem a repair expense, the IRS would classify as a building improvement.

Doing some research into that topic, lead me to the Small Taxpayer Safe Harbor for Repairs.  Which is another interesting topic.  And may enable smaller land lords and investors some relief. 

http://www.nolo.com/legal-encyclopedia/small-taxpa...

Usual disclaimer: of course, everybody's situation is different.  Always consult your tax advisor.

@Charles Press 

I use Quicken for my accounting.  I do keep repair costs separate from maintenance for a couple of reasons.  First, Schedule E (1040) reports maintenance expenses on line 7 and repair costs on line 14. Secondly, maintenance expenses are recurring expenses that I expect to pay each year.  Repair expenses are unplanned and just happen unexpectedly.  It is easier to budget for the recurring maintenance expenses when I have a known cost.  If you want to budget for repairs, then it is easier to use your past history to estimate the repair expense when you keep the categories separate.