If last year your business made repairs to tangible property, such as buildings, machinery, equipment, or vehicles, you may be eligible to deduct the expenses on your 2016 income tax return. However, you must determine if the expenses qualify as “repairs,” and are not actually “improvements.”
The distinction between repairs and improvements is important. In general, a cost that results in an improvement to a building structure or any of its building systems (for example, the plumbing or electrical system) or to other tangible property must be capitalized and depreciated over a period of years. But, you can take an immediate expense for the costs incurred for incidental repairs and maintenance.
You are considered to have made an improvement to a unit of property when you meet any one of the following criteria:
2 Safe Harbors
Distinguishing between repairs and improvements can be difficult since there are no bright-line tests. However, a couple of IRS safe harbors can help:
Amounts incurred for activities outside the safe harbor don’t necessarily have to be capitalized, though. These amounts are subject to analysis under the general rules for improvements.
There is also a de minimis safe harbor as well as an exemption for materials and supplies up to a certain threshold. Contact me for details on these safe harbors and exemptions and other ways to maximize your tangible property deductions. You can reach me at HZemel@BerdonLLP.com or contact your Berdon advisor.
Hal Zemel, a Tax Partner at Berdon LLP, New York Accountants, has nearly 25 years in public accounting and advises businesses in the manufacturing, distribution, advertising, and real estate sectors.