The Repair vs Capitalization Argument and What Changed This Year


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Repair VS CapitalizationFor decades, a common tax dilemma for real estate investors has been how to handle repairs to property. The investor would love to write the expenses all off and the IRS would love for them to capitalize the costs and depreciate them over time.

The IRS finally once and for all came up with the rules, but then they added a whole lot more including how and when to write off materials and supplies, how to elect a de minimis safe harbor, what to write off with acquisition costs and improvements costs and gave us a whole new way to depreciate property using units of property (UOP). The fact that they grouped in materials and supplies opened this whole can of worms up to all business owners, and not just real estate investors. The new rules for UOP and disposal/write-off of repaired properties means that most real estate investors will have to relook at their depreciation schedules. They may have to make retroactive depreciation changes. That’s all done with the Form 3115 filings.
The AICPA (American Institute of Certified Public Accountants) came up with a summary of all the changes which you can review at aicpa.org

I think the one thing it has done is just made the preparation of your 2014 return a lot more complicated.



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