08/28/2026
IRS Regulations All Real Esate Owners Should Be using On A Yealry Basis
TAX SAVINGS OPPORTUNITIES: THREE SAFE HARBORS FOR PROPERTY OWNERS
How the IRS Safe Harbors Can Help Property Owners Deduct More Costs Now
The IRS tangible-property regulations provide several safe harbors that can allow qualifying costs to be deducted currently rather than capitalized and depreciated over many years.
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1. DE MINIMIS SAFE HARBOR ANNUAL ELECTION
PROPERTY BY PROPERTY USE
Small-Dollar Property & Improvements
The De Minimis Safe Harbor allows qualifying taxpayers to expense certain small-dollar purchases that otherwise might have to be capitalized.
Current thresholds:
• $2,500 or less per invoice or item.
The taxpayer generally must have a consistent accounting policy to expense these items and must make the appropriate annual election with the tax return.
Example:
A property owner purchases $2,000 of qualifying equipment or components. If the requirements are met, the cost can be expenses and not capitalized as long as it is not part of a major improvement.
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2. ROUTINE MAINTENANCE SAFE HARBOR
ONE TIME STATEMENT ON TAX RETURN
Recurring Repairs & Maintenance
This safe harbor can allow certain recurring maintenance costs to be deducted rather than treated as improvements.
Generally, the work must:
• Be a recurring activity;
• Be expected because of the property's use;
• Keep the property in ordinarily efficient operating condition; and
• Be reasonably expected when the property is placed in service, to occur at least twice in a 10-year period.
For buildings and building systems, the expectation is generally that the activity will be performed more than once during the 10-year period beginning when the property is placed in service.
Examples may include: recurring inspections, cleaning, testing, and replacement of worn or damaged components with comparable parts.
Important: The safe harbor does not apply to betterments or adaptations to a new or different use.
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3. SMALL TAXPAYER SAFE HARBOR
ANNUAL ELECTION ON TAX RETURN
A Special Rule for Smaller Property Owners
A qualifying small taxpayer may elect to deduct certain amounts spent on a building rather than capitalize them as improvements.
Generally, the taxpayer must have:
1. Average annual gross receipts of $10 million or less;
2. Building property with an unadjusted basis of $1 million or less; and
3. Total annual spending on repairs, maintenance, improvements and similar activities that does not exceed the lesser of:
• 2% of the building's unadjusted basis, OR
• $10,000 maximum.
The election is made annually for qualifying buildings by attaching the appropriate statement to the timely filed tax return.
Example:
A qualifying property owner has a building with an unadjusted basis of $500,000.
2% × $500,000 = $10,000
If qualifying annual expenditures are $10,000 or less, the small taxpayer safe harbor may allow those costs to be deducted rather than treated as building improvements.
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WHY THIS MATTERS
These safe harbors can provide property owners with faster tax deductions and improved cash flow by reducing the amount of qualifying expenditures that must be capitalized.
