Repair and Maintenance (R&M) Tax Review Highlights
A very little known tax strategy involves opportunities for taxpayers to expense certain costs that traditionally have been capitalized. Several recent court cases have produced laws that provide more clearly defined guidance for classifying certain construction costs as “repair and maintenance” rather than fixed asset costs. A thorough understanding of the various tax case laws and “tests” that must be met is necessary to claim or reclassify these immediate expenses. Comprehensive documentation is also essential to withstand the scrutiny of an IRS audit that could be triggered by claiming these expenses. The current laws can be applied to all current and future tax years, as well as items that were put into service as many as 5 years ago.
R&M Review Details
Application of maintenance repair expense versus capitalization tax methods requires in-depth knowledge of IRS case laws and guidance, as well as understanding of construction and maintenance industry standards. Thorough documentation is necessary to sustain audit and must show the application of existing law for each asset reclassified. Identify types of assets reclassified. Consider Industry specific issues. Types of projects that typically lend themselves well to an R&M review include but are not limited to:
- Interior construction and renovation – buildings and their components such as finishing material, electrical, mechanical and plumbing systems
- Land improvements
- Utilities and telecommunication equipment installation – power generation assets and network assets such as poles, cables, and wires.
Potential Benefits
Industries that stand to benefit the most from an R&M review include retail operations, manufacturing businesses, and other organizations that change-out or maintain property frequently. Businesses with multiple locations that have similar maintenance costs at each location are another example of prime beneficiaries. Any property owner that has replaced certain building or sitework components can potentially benefit from reclassifying these costs as expenses from capitalized assets with long depreciation periods. Due to the size or nature of their operations other industries that are good candidates include auto dealerships, grocery stores, banks, restaurant/hotel chains, other retail and more.
The Process
To claim this deduction, the property/business owner must conduct a detailed engineering analysis, as prescribed by the IRS. Our engineers possess in-depth knowledge of IRS case laws and guidance, as well as understanding of construction and maintenance industry standards, and will follow IRS guidance to ensure that you obtain the maximum allowable deductions that will withstand the scrutiny of an IRS audit. Blue Ray Engineering makes the process completely turn-key by providing a detailed report capturing the details behind each asset reclassified.
Find Out How You Can Benefit for FREE
Blue Ray Engineering offers a free feasibility assessment illustrating how you can benefit from an R&M review study. To find out more or to get started on a feasibility assessment, contact us today.
Contact Blue Ray Engineering today for a free analysis and quote @ (321) 432.9524
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