Election to Capitalize Repair, Maintenance Expenditures
The election to capitalize repair and maintenance expenditures can be smart in some cases. Find out when taxpayers should take advantage of this option below.
This provision of the regulations will generally be applied by larger businesses that wish to reduce the administrative burden of maintaining two separate accounting systems. A taxpayer choosing this option may elect to treat repair and maintenance expenditures (only those defined under Reg. Sec. 1.162-4 - Repairs) as depreciable capital expenditures if the taxpayer:
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Incurs these amounts in carrying on the taxpayer's trade or business, and,
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Treats these amounts as capital expenditures on its books and records regularly used in computing income.
A taxpayer that makes this election must apply it to all amounts paid for repair and maintenance to tangible property that it treats as capital expenditures on its books and records in that taxable year. Any amounts for which this election is made shall not be treated as amounts paid for repair or maintenance under §1.162-4.
Caution
This election is limited to repairs and maintenance included in Reg. Sec. 1.162-4. Items expensed under other provisions of the Regulations are not covered by the election.
Time and Manner of Election
The election is made by attaching a statement to the taxpayer's timely filed original Federal tax return (including extensions) for the taxable year.
The election statement must be titled "Section 1.263(a)-3(n) Election" and include the taxpayer's name, address, taxpayer identification number, and a statement that the taxpayer is making the election to capitalize repair and maintenance costs under §1.263(a)-3(n). In the case of a consolidated group filing a consolidated income tax return, the election is made for each member of the consolidated group by the common parent, and the statement must also include the names and taxpayer identification numbers of each member for which the election is made. In the case of an S corporation or partnership the election is made at the entity level.
Accounting Method Change
No accounting method change is required to exercise this election