Written into the Final Tangible Property Regulations (263a) are a set of Safe Harbors that building owners can utilize to increase the amount of expensed repairs to their buildings. Expensing repeated repairs is an amazing opportunity for taxpayers who own or lease commercial, multifamily, or residential rental properties. While the Routine Maintenance Safe Harbor is very taxpayer-friendly, it is the most underutilized by owners of many property types.
The Routine Maintenance Safe Harbor allows a building owner to expense repairs that he or she determines will be repeated at least every 10 years. Multifamily and hotels, for example, routinely repaint, update lighting fixtures and plumbing fixtures, change worn carpet, etc. These items can be costly to replace for the owners, but by utilizing the Routine Maintenance Safe Harbor, large expenditures can be expensed rather than capitalized over 27.5 or 39 years.
- Routine Maintenance Safe Harbor does not apply if the expenditure makes the component better or expands the size of the building.
- You may deduct the expenditure if you reasonably expect to perform the same repair again in the next 10 years.
- This is not an annual election, but cite Reg. Sec. 1.263(a)-3t(g) on your return.
- Talk to your tax professional and coordinate accounting practices so he/she can facilitate.
- Consider the recurring nature of the activity, industry practice, your experience, replacement history, and manufacturer’s warranty.
With all the changes to U.S. tax law in the last 5 years, building owners should see a reduction in the amount of taxes owed if they take advantage of the Tangible Property Regulations and its Safe Harbors. Keep an eye out for additional follow up information on other tax-saving opportunities for commercial, multifamily, and income property owners.