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: One aspect of maintenance is that it is recurring. The client does not expect to replace the door again within 10 years, perhaps not even within 30 or more years. Therefore this particular property improvement meets the definition of capital improvement: The door cost more than the client’s capitalization threshold of $500. It’s a “betterment” to the building, making the building safer (more fire resistant) and more functional (adding a window for observation). Therefore we recommend capitalizing the new door. We also recommend the IRS framework as described above for helping you make decisions about property improvements, especially those that fall into “borderline” territory between maintenance and capital improvement. As you can see, professional judgment is still required. Differences in opinion, even between two financial professionals, can occur. We suggest documenting why a decision was made to capitalize or expense a property improvement that exceeds the organization’s capitalization threshold, especially if an argument can be made either way.