IRS classification of Maintenance costs

[Brigitte Garrett]

Hi All,

Under the current tax laws is interior painting considered maintenance vs repairs?

What about roof maintenance (replacing a few shingles)?

I would like to have document references to support classifying these two expenses as Maintenance (not repairs) so that I am safely classifying these costs under the Safe Harbor for Routine Maintenance.

Also, it is my understanding that the Safe Harbor rule for Routine Maintenance stands apart form the Safe Harbor Election for Small Taxpayers which is an issue due to the 2% rule.

Safe Harbor Election for Small Taxpayers

The total amount paid during the taxable year for repairs, maintenance, improvements, or similar activities performed on such building property doesn't exceed the lesser of-

• Two percent of the unadjusted basis of the eligible building property; or
• $10,000 (for questions about how to calculate the unadjusted basis, refer to "Figuring the Unadjusted Basis of Your Property" in Publication 946

Safe Harbor for Routine Maintenance

You are not required to capitalize as an improvement, and therefore may deduct, amounts that meet all of the following criteria:

• Amounts paid for recurring activities that you expect to perform;
• As a result of your use of the property in your trade or business;
• To keep the property in its ordinarily efficient operating condition; and
• You reasonably expect, at the time the property is placed in service, to perform the activities:
  • For building structures and building systems, more than once during the 10-year period beginning when placed in service, or
  • For property other than buildings, more than once during the class life of the unit of property.

Thanks in advance for any guidance you can provide.

[Thomas Castelli]

It sounds like you are asking if these items are considered repairs and maintenance, or capital improvements.  Capital improvements need to be capitalized and depreciated over a number of years, whereas repairs and maintenance expenses are immediately deductible.  

Assuming the property is already placed in service, interior painting is always considered a repair and maintenance item and can be immediately deducted this year.   

As for replacing a few shingles, that appears to also be considered a repair and maintenance item. This is because repairing a few shingles isn't substantially improving or completing replacing the roof.

Here's a link that explains this a little more in depth: https://www.fsresidential.com/corporate/news-and-events/articles/maintenance-vs-capital-improvements-whats-the-d

Hope this helps! 

[Brigitte Garrett]

Thank-you.  Where I am getting confused is regarding the Safe Harbor Election by Small Taxpayers 2% of asset rule.  For example all my improvements, repairs and maintenance is greater than 2% of my buildings value.  We installed a water meter that I would like to currently deduct but because of work on the building being more than 2% of the building value, even though the meter cost is under $2500 I'm not sure that I can expense it.  Guidance please?

[Basit Siddiqi]

@Brigitte Garrett

The Repair Regulations that passed a couple years ago allowed a couple different exceptions for you to expense items that normally may had to be capitalized.

The 2% rule is of the exceptions
Another exception is the de minimis $2,500 cost.

You do not have to qualify under all of the exceptions. You just need to qualify under one of the exceptions.