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It’s Time to Get Rid of Complex IRS Expense Regs

IRS Expense Regs

Tax time is here and the apartment industry is dealing with complex and sweeping Internal Revenue Service (IRS) tangible property regulations. Specifically, the regulations are focused on expenses from the repair and maintenance of buildings and whether they can be deducted immediately or must be capitalized over a period of years. The operation of apartment buildings involves numerous daily maintenance and repair expenses. So these regulations create related burdens for small and mid-sized apartment owners and operators in particular.
Under the current rules, taxpayers with an applicable financial statement (AFS) may rely on a safe harbor enabling them to deduct up to $5,000 per expense for repair and maintenance costs. Taxpayers without an AFS, like many smaller apartment owners and operators, are limited to a deduction of only $500.

Tangible property regulations also ask that expenses be tracked on individual buildings, which is extremely burdensome. For example, a typical 200-unit suburban apartment community is actually 20 housing buildings and each building includes about 10 separate apartment units. Designating a property as one – instead of as a group of buildings – actually would more closely follow how a property is purchased, sold and operated. 

NAA/NMHC are recommending that the IRS raise the safe harbor limit to $5,000 for entities that do not issue an AFS. We are also asking them to consider more relief by designating a development made up of multiple buildings as a single unit of property.


Provided by NMHC as part of the NAA/NMHC Joint Legislative Program