A taxpayer can take an income tax deduction for repairs and maintenance of property used in a business or as an investment. However, the cost of an improvement to property has to the property be treated as a capital expenditure, which means that no tax deduction is available.
In some cases the difference between a repair and an improvement is obvious. Painting a building the taxpayer uses to operate a retail business would be a deductible repair, while adding a second story to the premises would be a non deductible capital improvement. Other items though could fall in a grey area, such as replacing windows or doors with much higher quality windows or doors; and as I know well as a bankruptcy lawyer having to argue with the IRS can prove expensive.
Fortunately beginning in 2014 small businesses can rely on a safe harbor for repair expenses for buildings . Taxpayers with less than $10,000,000.00 of annual gross receipts can now elect to deduct all expenses on a building that costs up to $1,000,000.00 provided the deduction for the year does not exceed the lesser of $10,000.00 or 2% of the building’s unadjusted basis.
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