IRS Eases Repair Regs for Small Multifamily Operators

Tax Calculator Credit Patpitchaya — Copyright: Patpitchaya

The Internal Revenue Service (IRS) on November 24 simplified the application of so-called Repair Regulations that address how expenses in connection with acquiring, maintaining and improving tangible property, including multifamily buildings, should be treated for tax purposes. That is, depreciated or expensed. Specifically, the IRS increased to $2,500, from $500, the amount of an expense that taxpayers without an applicable financial statement (AFS), such as smaller multifamily operators, can deduct in the year of purchase rather than depreciate over a number of years.

Notably, NMHC/NAA in March 2015 wrote the IRS requesting a substantial increase in the $500 threshold. “For those operators who do not produce an AFS, tracking and evaluating literally every expenditure that exceeds $500 represents a significant and costly compliance burden. This time and money could be much better spent on maintaining the nation's 19.7 million apartment homes,” said NMHC/NAA.

Taxpayers without an AFS may deduct expenses exceeding $2,500 if they may otherwise be expensed rather than depreciated. Taxpayers with an AFS may continue to rely on a safe harbor enabling them to deduct up to $5,000 per expense for repair and maintenance costs.

The increased $2,500 threshold is effective for taxable years beginning in 2016. But the IRS said it will not challenge its use in prior taxable years as part of an audit or in proceedings before the U.S. Tax Court.

Matthew Berger mberger@nmhc.org

IRS Eases Repair Regs for Small Multifamily Operators

December 04, 2015

Staff Resource

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