In my October 21st blog called ” New Tax Guidance for Owners of Real Estate Part I “Small taxpayer safe harbor” I discuss the finalization of the IRS regulations that will help you determine if an expense to repair or replace an item at your residential or commercial property can be taken in the current year or if it is an improvement that has to be depreciated over many years. The IRS in there new regulations have created the “safe harbor” which allows taxpayers to avoid having to determine if an expense is a repair or an improvement and allows the small business owner to take the full deduction in a single year.
One of the safe harbors applies to routine maintenance which under the new regulations are deductable in a single year and there is no annual dollar limit.
You may be asking yourself well what exactly qualifies as routine maintenance to the IRS. Routine Maintenance consists of recurring work that occurs periodically(At least every 10 years) for the general upkeep of a building or systems within the building to ensure proper functioning condition. Some examples of routine maintenance includes: Cleaning, Inspection, Testing, Replacement of worn or non-functional parts.
1. If maintenance does not occur within a ten year window it does not qualify for the safe harbor. BUT, you are not necessarily in big trouble if you can prove that when you placed the property or item in service that you reasonably expected that it would need service within a ten year period.
2. Remodeling or restoring a building that is in disrepair to properly functioning condition does not qualify for the safe harbor as it would not be considered routine maintenance.
3. The routine maintenance deductions do count towards the 2 percent or $10,000 annual ceiling for deductions under the small business safe harbor I discussed in my previous blog. So for example if your annual limit is $6,000 and you deduct $7,000 in maintenance you can’t deduct anything under the small business safe harbor. With a reasonable amount of strategic planning you can get the most benefit in any given year.
Hope this information helps! Summarizing the IRS regulations and the many other publications on the topic that I’ve come accross certainly helps me puts the information in terms that i comprehend.