E-Alert
June 1, 2010
Should Repairs be Capitalized or Expensed?
Many taxpayers categorize repairs and maintenance on property or equipment as an expense. But the IRS may disagree and require such repairs to be capitalized.
The IRS is now closely scrutinizing whether amounts expensed as repairs and maintenance should have been capitalized. The standard used by the IRS is that only payments that are made for the purpose of keeping the property in ordinary efficient operating condition (such as the replacement of short-lived parts) should be expensed. If a repair adds to the value or appreciably prolongs the life of a piece of equipment or property, the cost should be capitalized.
It is important that you have documentation clearly supporting whether the expenditure should be expensed or capitalized.
If you have any questions regarding the information in this article, or have any other issues you would like to discuss, please feel free to contact the DZH Phillips tax department at 415.781.2500 or email cpas@dzhphillips.com.
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