Repair vs. Improvement

[Doris711]

I have a daycare client that replaced two windows in the home used for daycare  Can the cost be expensed or does it need to be capitalized?  

[abctax55]

How much were the windows?

[Doris711]

The windows were $6800 each, labor included. 

Thanks!

[Terry53029 · Accepted solution]

De minimis election

Under the tangible property regulations and Notice 2015-82, expenditures for tangible property that would otherwise be capitalized can be expensed if the item costs $2,500 or less and the taxpayer makes the proper election. Taxpayers with applicable financial statements have a de minimis cap of $5,000 per item. The taxpayer makes the election annually by including a statement with the tax return citing "Section 1.263(a)-1(f) de minimis safe-harbor election." The election is made in the year the tangible personal property is placed in service and is allowed in any year of ownership.

Small taxpayer safe-harbor election

Landlords with gross receipts of $10 million or less and whose unadjusted basis in each property is $1 million or less can elect to write off repairs, maintenance, and improvements if the total of these expenditures does not exceed the lesser of 2% of the unadjusted basis of the property or $10,000 during a given year. Items deducted under the de minimis election are also included in the routine maintenance safe-harbor calculation (Regs. Sec. 1.263(a)-3(h)(2)). The taxpayer makes the annual election by including a statement citing "Sec. 1.263(a)-3(h)(1) Safe Harbor Election for Small Taxpayers," along with the name, address, and ID number of the taxpayer and a description of each eligible building property for which the election is being made. The election can be made on a building-by-building basis.

[Doris711]

I appreciate the information and your time. 

THANKS!