Deductions for Repairs for Landlords, Businesses, and Sole Proprietors (2023)

Sole proprietors, businesses, and rental property owners can deduct expenses for repairs and maintenance of their property and equipment, although the average homeowner can't generally claim a tax deduction for these expenses. The rule for businessowners and landlords is that you can generally deduct amounts paid for repairs and maintenance if the expenses don't have to be capitalized.

Some isolated energy-related tax credits are available for the average homeowner, however.

Routine Repairs and Maintenance vs. Capitalization

"If you repair stuff, you can deduct it," according to Steve Nelson, a certified public accountant who has written extensively about deducting repairs on the Evergreen Small Business blog. "If what you do is considered to be a betterment, a restoration, or an adaptation, the rules say we're going to make you capitalize it and depreciate it unless it's such an amount that it's small potatoes."

According to the IRS, routine maintenance keeps your property in good working condition without increasing its value or prolonging its useful life, and these expenses can be deducted in the year they occur. The IRS defines routine maintenance as something that "keeps your property in a normal efficient operating condition."

Changing the oil in your car would be an example, because it keeps the car operating normally and efficiently. It doesn't necessarily or substantially prolong the useful life of the car.


Replacing the transmission would prolong the useful life of the car, so this expense would likely have to be capitalized.

Capitalizing Repairs: The "BRA" Test

The IRS tightened up the rules for how repairs and maintenance expenses can be deducted back in 2014, but it's still possible to claim these expenses. An expense is generally capitalized and depreciated over several years if it makes equipment better, restores the property to its normal condition, or adapts the property for a new or different use.

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Repair and maintenance expenses that don't fall into the categories of "betterments," restorations, or adaptations" can be deducted in full in the year the expense was paid.

One way to remember this concept is the "BRA test," a mnemonic that refers to betterments, restorations, and adaptations.

What Is a Betterment?

As the name suggests, betterments are repairs that are intended to make something better than it was prior to the repairs being made. Repairs fall into this category if they:

  • Fix a defect that existed before you bought the property
  • Fix a defect that happened while the property was being made or built
  • Enlarge or expand the property so that it has more capacity
  • Increase the property's quality, strength, efficiency, or productivity

Costs That Are Restorations

Restorations are repairs that restore or return an asset to its normal condition. Fixing a roof or replacing it entirely are examples. Repairs fall under the category of restorations if they:

  • Restore deteriorated property to its "ordinarily efficient operating condition"
  • Replace a major component or substantial structural part of a piece of property
  • Rebuild the property to like-new condition
  • Result in a deductible loss, sale or exchange, or casualty loss treatment for the property or a component of the property

Adaptation Expenses

Adaptations are repairs that change how the property or equipment is being used. An example would be a building owner converting a factory into a showroom. How the building is being used changes from manufacturing to retail. Any repairs related to adapting the property are capitalized.

Specifically, the IRS says that an adaptation expense is "paid to adapt a unit of property to a new or different use if the adaptation is not consistent with your ordinary use of the unit of property at the time you originally placed it in service."

Three Safe Harbor Rules

The general rule is that expenses for repairs and maintenance must be capitalized and depreciated, but there are three exceptions that the IRS refers to as "safe harbors." This basically means that you don't necessarily have to meet all the rules if extenuating circumstances exist. You can immediately deduct these expenses if you meet one of these rules.

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You can't just write off an expense even with a safe harbor, however. The IRS requires that you make a specific election to do so by attaching a statement to your tax return.

# 1 A Safe Harbor for Small Invoices

A person or business can immediately deduct repair and maintenance expenses if the cost is $2,500 or less per item or per invoice. This is up from $500, which was the threshold through December 31, 2015. A business with an "applicable financial statement," however, has a safe harbor amount of $5,000.


Consider using this "de minimis" safe harbor if your total invoice is $2,500 or less. The Latin phrase effectively translates to "something insignificant."

# 2 A Safe Harbor for Small Projects

Repairs can be deducted immediately if the total amount paid for repairs and maintenance on the property is $10,000 or under, or 2% of the unadjusted basis of the property, whichever amount is less. This safe harbor is only available for businesses with revenues under $10 million and when the property being repaired has an unadjusted basis under $1 million.

# 3 A Safe Harbor for Routine Maintenance

Repair expenses can be deducted immediately if the repairs consist of routine maintenance and satisfy four criteria. The repairs are regularly recurring activities that you would expect to perform, and they result from the wear and tear of being used in your trade or business. They're necessary to keep the property operating efficiently in its normal condition.

Finally, the repairs are expected to be necessary more than once during a 10-year period for buildings and structures related to buildings, or more than once during the property's class life for property other than buildings. The term "class life" refers to the number of years over which the IRS expects property to be depreciated.


Is it an expected and necessary part of keeping the property in ordinarily efficient operating condition? If so, consider using the safe harbor for routine maintenance.

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A word of caution, however: The routine maintenance safe harbor does not apply to expenses that fall under the category of betterments.

Partial Dispositions—An Example

Suppose a landlord replaces a roof on their rental property. The cost of the property was split into two when the property was placed in service as a rental: land and building. The land is a nondepreciating asset. The cost of the building was capitalized and depreciated over a period of years—27.5 years for residential real estate or 39 years for commercial real estate. The cost of the old roof is therefore included in the cost of the building and it's being depreciated over time.

Now the landlord replaces the roof. This type of restoration must be capitalized and depreciated over 27.5 years or 39 years, depending on the nature of the property. Now the landlord has two assets being depreciated: the original building and the new roof. But the old roof is included in the building so, in a way, the landlord is depreciating an asset—the old roof—that no longer exists.

In this scenario, the IRS allows the landlord to make a partial disposition. In essence, the landlord can write off the cost of the old roof, thus removing that part of the cost from the building's depreciation schedule.

What's the benefit? There's an immediate deduction for the old roof, which offsets the downside of having to depreciate the new roof over several years. As an added bonus, there's no depreciation recapture because there was no sale or exchange. Partial dispositions result in less accumulated depreciation to recapture if the property is sold in the future.

A Repair and Maintenance Checklist

Categorize each repair or maintenance expense with this checklist to determine how to handle it:

1.Review the invoice for the expense. Does it qualify for a safe harbor?

2.Apply the BRA test: Is the expense a betterment, a restoration, or an adaptation?

3.Consider the nature of the repair.

5.Consider whether it is possible to write off a "partial disposition."

6.Capitalize any expenses as necessary and set up a depreciation schedule for writing off the repair expense.

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NOTE: Tax laws change periodically. You should always consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and it is not a substitute for tax advice.


What deductions can I claim as a sole proprietor? ›

In addition to health insurance, common deductions include equipment, utilities, subscriptions, travel, and capital assets. If you operate your business out of your home, you can likely claim the home office deduction. Certain everyday expenses, such as rent and utilities, can be deductible.

How do I deduct repairs on a rental property? ›

You can recover some or all of your improvements by using Form 4562 to report depreciation beginning in the year your rental property is first placed in service, and beginning in any year you make an improvement or add furnishings. Only a percentage of these expenses are deductible in the year they are incurred.

What qualifies as repairs and maintenance? ›

The costs incurred to bring an asset back to an earlier condition or to keep the asset operating at its present condition (as opposed to improving the asset).

What are 3 disadvantages of a sole proprietorship? ›

Disadvantages of sole trading include that:
  • you have unlimited liability for debts as there's no legal distinction between private and business assets.
  • your capacity to raise capital is limited.
  • all the responsibility for making day-to-day business decisions is yours.
  • retaining high-calibre employees can be difficult.

Do sole proprietors get pass through deduction? ›

Pass-Through Business Deduction (Sec.

The Tax Cuts and Jobs Act created a deduction for households with income from sole proprietorships, partnerships, and S corporations, which allows taxpayers to exclude up to 20 percent of their pass-through business income from federal income tax.

What is the difference between maintenance and repairs for rental property? ›

The goal is to keep existing property functioning. For example, routine servicing of HVAC units is maintenance. Installing a new HVAC system is not. Repairs are any work done to fix damage and deterioration.

What type of expense is repairs and maintenance for rental property? ›

According to the Internal Revenue Service (IRS), capital expenses are improvement costs made for the betterment or restoration of a rental property or for adaptation to a different use.

What is the difference between repairs and improvements on a rental property? ›

An improvement is something that adds value or extends the useful life of a rental property. Whereas repairs restore something that broke to its original condition, improvements add value for future years.

What are the repairs and maintenance expenses? ›

Repairs and maintenance are expenses for normal maintenance and upkeep of capital assets that are necessary to keep the assets in their usual condition. These expenses are recurring in nature and do not extend the useful life of the asset.

What is the difference between repairs and improvements? ›

Here's a rule of thumb: An improvement is work that prolongs the life of the property, enhances its value or adapts it to a different use. On the other hand, a repair merely keeps property in efficient operating condition.

Are landlord repairs tax deductible? ›

Repairs and maintenance costs

Fair repair and upkeep costs are allowable expenses for landlords. Work such as repairing water leaks, heating problems and broken windows are all allowable. So, too, is the cost for your annual gas safety certificate and service, plus your electrical condition report.

What would be considered a repair? ›

A repair is essentially maintenance that brings an asset back to working condition but doesn't improve on its condition beyond the quality or usefulness that existed before the work was done.

What are the example of repairs and maintenance? ›

Repairs are restoration work for when something gets broken, damaged or stops working. Maintenance are routine activities meant to prevent damage and prolong the life of appliances, fixtures, and the property itself. Examples include regular cleaning of air-conditioning units, grease traps, repainting, and the likes.

What are the 4 types of maintenance? ›

4 types of maintenance strategy, which one to chose?
  • Corrective maintenance.
  • Preventive maintenance.
  • Risk-based maintenance.
  • Condition-based maintenance.

What is the biggest threat to sole proprietorship? ›

The most serious risk of a sole proprietor is unlimited personal liability for the business' debts. This means that if the business is unable to pay its debts, your house, assets, and bank accounts are in jeopardy. If you are married, your spouse's interest may also be at risk.

Why you should not form a sole proprietorship? ›

3 disadvantages of sole proprietorship

No liability protection. It's harder to get financing and business credit. It's harder to sell your business.

Why is sole proprietorship the worst? ›

Among one of the biggest disadvantages of a sole proprietorship is unlimited liability. This liability not only spans the business but the business owner's personal assets. Debt collectors can access your savings, property, cars, and more to see a debt repaid.

What expense Cannot be deducted by a sole proprietor? ›

You cannot legally deduct the cost of state required insurance, including worker's compensation.

How much does a sole proprietor have to make to pay taxes? ›

You have to file an income tax return if your net earnings from self-employment were $400 or more. If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement listed in the Form 1040 and 1040-SR instructionsPDF.

How do sole proprietors handle taxes? ›

As a sole proprietor you must report all business income or losses on your personal income tax return; the business itself is not taxed separately. (The IRS calls this "pass-through" taxation, because business profits pass through the business to be taxed on your personal tax return.)

Do sole proprietors get tax refunds? ›

Can a Sole Proprietor Get a Tax Refund? Yes, as a sole proprietor, there are several circumstances in which you can get a tax refund for certain business expenses. They can reduce your income taxes, reduce your tax liability, and actually help you increase your profit rate.

How much should I set aside for taxes as a sole proprietor? ›

Small businesses pay income, payroll and other taxes. According to NerdWallet, because small business owners pay both income tax and self-employment tax, small businesses should set aside about 30% of their income after deductions to cover federal and state taxes.

Can a sole proprietor write off lunch? ›

If you're a sole proprietor, you can deduct ordinary and necessary business meals and entertainment expenses. However, these expenses must be directly related to or associated with your business. If you're an employee, you can deduct these only to the extent your employer doesn't reimburse you.

How much can a sole proprietor make without paying taxes? ›

You have to file an income tax return if your net earnings from self-employment were $400 or more. If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement listed in the Form 1040 and 1040-SR instructionsPDF.

What are the tax benefits for sole proprietorship? ›

Self-Employment Tax Deduction

The current self-employment tax rate is 15.3% – 12.4% for social security and 1.9% for medicare. Fortunately, sole proprietors can deduct half of their self-employment tax. This deduction helps make the additional costs of sole proprietorship more accessible to the average taxpayer.

How do I get the biggest tax refund when self employed? ›

How to Get the Biggest Tax Refund in 2023
  1. Select the right filing status.
  2. Don't overlook dependent care expenses.
  3. Itemize deductions when possible.
  4. Contribute to a traditional IRA.
  5. Max out contributions to a health savings account.
  6. Claim a credit for energy-efficient home improvements.
  7. Consult with a new accountant.
Jan 24, 2023

Are you double taxed as a sole proprietor? ›

Sole proprietors only pay income tax once. Business and personal filings are combined on one tax return. Taxed on all profits of the business on a personal level. Sole proprietors must pay self employment taxes.

Can a sole proprietor pay taxes once a year? ›

In general, solopreneurs who take a salary and withhold income taxes from it make payments (or get refunds) annually on this “W2 income.” Talk to your CPA or enrolled agent or tax attorney to find out what rules apply to you. (Learn more about taxes for self-employed people from the IRS.)

Can a sole proprietor write off clothes? ›

That's right: the IRS allows for certain items of clothing to be written off as business expenses, depending on how they're used. Eligible pieces of clothing can be claimed alongside your other deductible expenses, on Schedule C of your tax return. You have to be self-employed to write off your work clothes.

Can I write off groceries on my taxes? ›

Can Self-Employed People Write Off Groceries? Unfortunately, self-employed people generally can't write off their groceries. For an expense to be tax-deductible, it must serve a legitimate business purpose. It's unlikely that groceries relate to your business unless you're a food vendor of some kind.

Does the IRS require itemized meal receipts? ›

Do I need the long detailed receipt from a restaurant or can I use the short summary with the total amount as documentation? Itemized receipts are required for the actual substantiation of business and travel meals. For meals, oftentimes you will need two (2) receipts to show all of the necessary information.

Can a sole proprietor pay himself? ›

As a sole proprietor, you can pay yourself whenever you want (and the business income allows).

What happens if a sole proprietor does not pay taxes? ›

If you fail to file a tax return at all, you run the risk of the IRS charging you with tax evasion. It's a federal crime not to file a tax return for a year in which you owe the IRS, and the penalties can be serious -- up to $25,000 for each year you fail to do so. A tax evasion charge also involves jail time.

How should I pay myself as a sole proprietor? ›

Sole proprietors and partners pay themselves simply by withdrawing cash from the business. Those personal withdrawals are counted as profit and are taxed at the end of the year. Set aside a percentage of earnings in a separate bank account throughout the year so you have money to pay the tax bill when it's due.


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