With the issuance of the final regulations, taxpayers now have safe harbor limits that maybe adopted to help eliminate the constant determination of “is this a repair or a capital expense”. In addition to these de minimums rules the regs also include guidelines on major repairs and maintenance to establish criteria for determination of classification.
Under what is often referred to as the BAR test, the IRS has given taxpayers a clearer definition of what constitutes a Betterment, Adaptation or Restoration. Classification in one of these categories would normally indicate the capitalization of the expenditure.
These regulations may require affirmative adaptation either by election or the completion of Form 3115.
Although many taxpayers have a policy in place for repairs vs. capitalization, it is more important than ever that this be a definitive written policy that is adhered to in all situations and consistent with the regulations. Contact your tax professional at Rushton for assistance in the interpretation and implementation of these new regulations.