Broken electric fireplace replacement - repair or improvement?

[Alik Levin]

Dear all!,

Does electric fireplace replacement count for repair or improvement?

The real question is can I deduct the expense at once or must I depreciate it from tax perspective?

Thank you

-Alik

[Christopher Smith]

I'm not sure how much such a replacement costs, however there are several fairly liberal safe harbor provisions that will allow you to expense many items so you don't ordinarily need to capitalize them. Below is an "unofficial" listing: 

$2,500 Safe Harbor Election for Small Taxpayers.

A person or business can immediately deduct repair and maintenance expenses if the cost is $2,500 (or less) per item or per invoice. A business with an "applicable financial statement," however, has a safe harbor amount of $5,000. This $2,500 limit takes effect for the tax year 2016.

For tax years 2014 and 2015, the limit was $500. See Notice 2015-82, Increase in De Minimis Safe Harbor Limit for Taxpayers Without an Applicable Financial Statement(pdf), on the IRS Web site for details concerning this change. For more details on this provision, see the de minimis safe harbor election section of the Q&A on the IRS Web site.

Safe Harbor for Small Taxpayers

Repairs can be deducted immediately if the total amount paid for repairs and maintenance on the property is less than or equal to $10,000 or 2% of the unadjusted basis of the property, whichever amount is lower. And the safe harbor is only available for businesses with revenues under $10 million and the property being repaired has an unadjusted basis under $1 million. For more details on this provision, see the safe harbor election for small taxpayers section of the Q&A on the IRS Web site.

Safe Harbor for Routine Maintenance

If the repairs consist of routine maintenance, then the repair expenses can be deducted immediately. These are the type of repairs that happen on a regular basis.

The IRS has spelled this out in some detail. For routine maintenance to be immediately deductible, the IRS wants the expense to satisfy all four of the following criteria:

1. Repairs are regularly recurring activities of the type you would expect to perform;
2. The repairs result from the wear and tear of being used in a trade or business;
3. The repairs are needed to keep the property operating efficiently in its normal condition;
4. And it's fully expected that the repairs would need to be performed either:
   • More than once during a 10-year period (for buildings and structures related to buildings), or
   • More than once during the property's class life (for property other than buildings).

(Class life refers to the number of years over which the IRS expects us to depreciate property. This is outlined in , especially the property class section of chapter 4 and Appendix B.) -- from the Safe Harbor for Routine Maintenance section of the Q&A on the IRS Web site. A word of caution: the routine maintenance safe harbor does not apply for expenses that fall under the category of betterments.