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: Property purchases below the capitalization threshold should be expensed, even if they have a useful life of more than a year. See our post Fixed Asset or Expense? for more information on setting an appropriate capitalization threshold. IRS Framework for Capitalization
In 2013 the IRS issued final regulations over costs to “ acquire, produce or improve tangible real or personal property .” The regulations include a framework to explain more clearly which property costs should be capitalized vs. expensed. 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: