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: Yes, then determine if the property improvement fits the IRS framework for capitalization or for maintenance. The new door cost $750, which is more than the client’s $500 capitalization threshold. Therefore we proceed to step 2 and consider the IRS framework for capitalization vs. maintenance. The new door did in fact replace a worn out door, so in that sense it was needed maintenance to keep the property in ordinary operating condition. However, the door that was installed was a much better quality door and more functional than the one it replaced, so in that sense we could say it was a major improvement. 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).