The Most Overlooked Tax Savings Opportunity for Building and Residential Rental Owners

Routine Maintenance Safe Harbor

Building owners! Under the Tangible Property Regulations, passed in 2014, you are not required to capitalize as an improvement or betterment, which means you can expense amounts that meet the following criteria:

Amounts paid for recurring activities which keep the property in its ordinarily efficient operating condition, AND you reasonably expect to perform more than once during the 10-year period beginning when the property was placed in service.

All is not lost, however. If the expenditure doesn’t meet all of the requirements for the routine maintenance safe harbor. You may still deduct the amount if the amount is not for an improvement under the facts and circumstances analysis. We will address the facts and circumstances test in another blog. 

Of course, there are exceptions, but if the two criteria above are met, the exceptions are relatively rare. Here is a list of exceptions that would void the Routine Maintenance Safe Harbor:

  • The Routine Maintenance Safe Harbor doesn’t apply to expenditures paid that make the component or Unit of Property materially better.
  • The Routine Maintenance Safe Harbor does not apply to restorations that would otherwise be betterments, including amounts to replace a major component or substantial structural part of a unit of property.

What do you do to apply the Safe Harbor for to amounts paid for repairs and maintenance?

Because these final tangibles regulations are based primarily on prior tax law, if you were previously in compliance with the Tangible Property Regulations and you are still complying with the Regulations, no action is required.

Suppose you are not in compliance with the Tangible Property Regulations or want to change your method of accounting to use the Routine Maintenance Safe Harbor. You should file Form 3115, Application for Change in Accounting Method, and compute a section 481(a) adjustment.

TPTM can help you or your CPA get this done.

Kevin Jerry is a nationally recognized expert in Tax Method Changes. He specializes in Cost Segregation, Tangible Property Regulations, and revenue recognition changes. Kevin graduated cum laude from the University of Cincinnati with a Master of Science in Real Estate Taxation. Over the last seven years, he has worked with Eric Wallace on the Tangible Property Regulations with some of the largest property owners in the country.