{"id":1004211903,"date":"2012-05-15T00:00:00","date_gmt":"2012-05-15T08:00:00","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/cpe-uncategorized\/tax-implications-of-maintenance-vs-capital-improvement\/1004211903.html"},"modified":"2022-12-08T08:24:04","modified_gmt":"2022-12-08T16:24:04","slug":"tax-implications-of-maintenance-vs-capital-improvement","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/tax-implications-of-maintenance-vs-capital-improvement\/","title":{"rendered":"Tax Implications of Maintenance vs. Capital Improvement"},"content":{"rendered":"

By William Jenczyk, CPA<\/strong>
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Many property owners are unsure how to properly treat expenditures for the maintenance, upkeep and repair of their property. Are these costs for routine maintenance, in which case they are deductible against the current year\u2019s income? Are they capital expenditures, which must be capitalized and depreciated, resulting in a deduction that is spread out over many years? Or are they in a gray area somewhere in between?<\/p>\n

The IRS has recently released temporary regulations to clarify how taxpayers should treat these types of expenditures for income tax purposes. Although the regulations are not yet finalized, they are useful because they are based on previous IRS guidance as well as rulings issued by the IRS and the courts.<\/p>\n

In most cases, taxpayers are better off if an expenditure can be treated as a current period repair, since it is immediately deductible and may generally offset income at ordinary income tax rates. Expenditures that are capitalized add to the owner\u2019s basis in the asset, which will result in a lower capital gains tax in case of a sale. Under certain circumstances it may also be possible for a capital expenditure to be expensed immediately, or over a shorter time period, so all is not lost if a project is determined to be capital.<\/p>\n

The temporary regulations require the taxpayer to capitalize all expenditures that result in a \u201cbetterment,\u201d a \u201crestoration\u201d or a new or different use of a unit of property.<\/p>\n

A betterment <\/strong>has been defined as a cost that:<\/p>\n