IRS Issues ‘Repair Regulations’

On Dec. 23, 2011, the IRS issued temporary and proposed rules regarding the tax treatment of costs incurred in acquiring, maintaining, and improving tangible property, including multifamily buildings. The 255 pages of new regulations, published in the Federal Register, are temporary, meaning the IRS can edit the rules if sufficiently persuaded by the business community. However, despite being issued in temporary and proposed form, the regulations are effective as of Jan. 1, 2012, and currently have the same force as a final regulation.

An ordinary business repair of an asset is generally tax deductible. An improvement is usually classified as a capital expenditure and not immediately deductible. These repair regulations clarify whether such expenditures should be considered a capital improvement and depreciated over time or, alternatively, be viewed as an ordinary and necessary repair and deducted immediately from income. The regulations specify that expenses related to constructing or permanently improving a building, restoring property, or converting property to an alternate use must be depreciated. However, the new rules allow taxpayers to deduct the cost of routine maintenance.