Title: Capitalize or Expense Building Improvements? - Nonprofit Accounting Academy
Headings: Capitalize or Expense Building Improvements?
Capitalize or Expense Building Improvements?
IRS Rules on Tangible Property
Capitalization Threshold
IRS Framework for Capitalization
IRS Framework for Maintenance
The Question About the Door
Is that property or leasehold improvement “over the BAR?”

Content: In this post we are focused on building improvements, so we will describe the IRS framework in these terms. Costs to improve a building should be capitalized if the cost meets the organization’s capitalization threshold and is a (n): B etterment
Fixing a defect or problem in construction or that existed before purchase
Enlarging a building or significantly increasing capacity
Materially improving a building, such as making it stronger or more energy efficient
A daptation of a property to a new or different use
R estoration
Replacing a major component or structural part of the building
Restoring a property to good operating condition
Restoring a property to like-new condition after the end of its useful life
You can use the acronym BAR to remember these three criteria. IRS Framework for Maintenance
In contrast to capitalization, building improvements that qualify as maintenance should be expensed. The IRS describes routine maintenance costs as: Recurring activities that you expect to perform; As a result of your use of the property in your trade or business; To keep the property in its ordinarily efficient operating condition; and
You reasonably expect, at the time the property is placed in service, to perform the activities more than once during the 10-year period beginning when placed in service. Therefore even infrequent, major maintenance, such as painting, should be expensed.