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Article Date:
February 2016

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Have a Small Business? Own Real Property? Discover Repair Deductions

The money you spend fixing up your business and rental properties is either



a deductible expense1 or


a capital expenditure that you have to depreciate.2


Given a choice, you absolutely, positively want expense treatment, because expenses produce ordinary deductions.


If the expense and depreciation deductions were to run the 26.2 miles of a marathon, the expense deduction would beat the depreciation deduction by more than 13 miles. Here’s why:



You depreciate a property improvement over 27.5 or 39 years, depending on the type of property.


When you sell the property for a price that is higher than what you paid for it, you have to recapture the depreciation deductions, which took so long to get, at rates up to 25 percent.


As you can see, depreciation is a double whammy. It can work like this: you depreciate the fix-up over 39 years and then pay a 25 percent tax on the depreciation deductions. Compare that with the immediate deduction for an expense. We can see you drooling.


Under the new repair regulations,3 the IRS offers a special break for small businesses that allows them to expense rather than capitalize certain amounts. And since you are about to file your 2015 tax return, you’ll be happy to know that these tax-favored rules apply to last year if you make an election on your 2015 tax return. ... Log in to view full article.

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