If you are rental property owner, I think your favorite question to your CPA is how you should define repair and improvement?
You know the rationale behind is to classify the expenditure to repair expenses as much as possible because that means you can write off the expense in the year you paid and enjoy the tax benefit immediately. On the other hand, if it is improvement, the tax benefit will be spread out over 27.5 years (for residential rental) by claiming depreciation.
Effective in 2016, the Safe Harbors rule may answer your question by section 1.263(a)-3(h).
If you are qualified, you can deduct the lesser of 2% of the cost basis of the property or $10,000 as repair every year. For example, if your property’s cost basis is $600,000, you can write off up to $10,000 as repair expenses instead of capitalizing the expenditure to improvement which is subject to depreciation.
So, how to qualify such deduction?
If your average annual gross receipts for the three previous years were less than $10 million, and the property you are claiming for Safe Harbor rule is less than $1 million, by proper election in the tax return, you can deduct the improvement expenditure as repair expense with the lesser of 2% of the cost basis of the property or $10,000.
Be sure to mention this to your CPA to enjoy this tax benefit by making such election.
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