Bradford Tax Institute
Article Date:
March 2012


Word Count:
2526

 

 

New IRS Regulations Hammer Tax Deductions for Repairs, But Also Allow a New Deduction


Do you own rental property?

 

Does your business own its building?

 

Let’s say that, as you read this, you need to fix up the building. Is that fix-up a repair, or is it an improvement that you must capitalize and depreciate?

 

The IRS is here to help you with that repair or improvement classification, with 256 pages of new temporary regulations,1 effective not only as you read this, but as of the beginning of this year (January 1, 2012).2

 

Facing these new and lengthy regulations, you might think two things:

 

1.

Holy smokes, how am I ever going to comply with all these regulations?

2.

How am I going to come out dollars ahead on this?

 

Good news: You are getting a leg up on the new regulations by reading this article.

 

Repairs Produce the Most Cash

 

As explained in the article “Tax Saving Tips: How Repairs Put Extra Cash in Your Pocket,” you want repairs rather than improvements. Here are the big reasons why:

 

·

You deduct repairs in a single year.

·

You depreciate improvements over many years (39 years for nonresidential buildings, 27.5 years for residential buildings).

·

And then, depreciation is not what you would hope for. In reality, depreciation is more of a loan than a real deduction, because to the extent you have gain on sale, you pay a recapture tax of up to 25 percent on the depreciation you claimed.

 

When you put pencil to paper and quantify the three reasons above, you will find that a repair can produce up to 271 percent more cash in your pocket than an improvement can. ... Log in to view full article.

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