The Repair Regulations put in effect on January 1, 2014, contain several elections and safe harbors. We have previously covered the de minimis safe harbor election, while this article will address the routing maintenance safe harbor.
The Regulations provide that the cost of certain routine maintenance does not need to be capitalized. Under the routine maintenance safe harbor, an amount paid is deductible if it is for recurring activities that a taxpayer expects to perform to keep a unit of property in its ordinarily efficient operating condition during its ADS class life. The safe harbor applies to a building, structural component of buildings, and building systems. However, when applied to buildings, the taxpayer must reasonably expect to perform the activities more than once during the 10-year period beginning with the placed in service date of the building, structural component or building system.
It is important to take into consideration the recurring nature of the activity, industry practice, manufacturer's recommendations, and the taxpayer's experience when determining whether an activity is considered routine maintenance. However, it is not conditional that the maintenance be performed more than once during the property's ADS class life.
Note this safe harbor is not elective. Every taxpayer falls within this safe harbor, and therefore must account for the expenditure within these parameters. Please contact a KOS Advisor today if you would like to discuss how this safe harbor may apply to you or the next steps needed to obtain available tax benefits under the new Regulations.