For years, the IRS and taxpayers have sparred over whether certain expenses constitute “repairs” or “improvements.” The issue is important because repair costs can be deducted immediately while improvement costs generally must be capitalized for tax purposes and written off over several years.
Alert: At long last, the IRS has issued new temporary regulations on this subject. The new regs explain the tax treatment of expenses paid to acquire, produce or improve tangible property.
But these new regulations, a staggering 255 pages, are extremely complex in their own right.
Here’s the whole story: The basic rule is that the cost of repairs is currently deductible by a business. On the other hand, improvements must be capitalized and written off over time.
However, it’s often tough to tell a repair from an improvement. Generally, a repair keeps the property in good operating condition over its intended useful life. For example,...(register to read more)