T-Regs Q&A: Can you expense a remodel as a repair like you do parking lot resurfacing?


Scenario: A client owns fast food franchises and is required to remodel the stores every 7 years. Under the previous law, we have always capitalized these expenditures and expensed the remaining capitalized costs.


  • Own/Rent: Rent
  • Revenue: $1.5M-$2M (decreased during remodel, increase approx. 5% after)
  • Remodel Cost: $400k

Can we expense the remodel like you do the parking lot resurfacing as a repair?

This scenario fits the IRS’s definition of a “refresh” very closely. Therefore, provided that they do not incorporate significant energy efficient upgrades, then the costs would qualify as repair/routine maintenance costs under the refresh rules. Again, the facts and circumstances in each scenario must be considered. The IRS has provided specific examples relating to a refresh that may be helpful (see below):

Example 6. Not a betterment; building refresh. (i) F owns a nationwide chain of retail stores that sell a wide variety of items. To maintain the appearance and functionality of its store buildings after several years of wear, F periodically pays amounts to refresh the look and layout of its stores. The work that F performs during a refresh consists of cosmetic and layout changes to the store’s interiors and general repairs and maintenance to the store building to modernize the store buildings and reorganize the merchandise displays. The work to each store consists of replacing and reconfiguring display tables and racks to provide better exposure of the merchandise, making corresponding lighting relocations and flooring repairs, moving one wall to accommodate the reconfiguration of tables and racks, patching holes in walls, repainting the interior structure with a new color scheme to coordinate with new signage, replacing damaged ceiling tiles, cleaning and repairing wood flooring throughout the store building, and power washing building exteriors. The display tables and the racks all constitute section 1245 property. F pays amounts to refresh 50 stores during the taxable year. Assume that each section 1245 property within each store is a separate unit of property. Finally, assume that the work does not ameliorate any material conditions or defects that existed when F acquired the store buildings or result in any material additions to the store buildings.

(ii) Under paragraphs (e)(2)(ii) and (j)(2)(ii) of this section, an amount is paid to improve a building unit of property if the amount is paid for a betterment to the building structure or any building system. Considering the facts and circumstances including the purpose of the expenditure, the physical nature of the work performed, and the effect of the expenditure on the buildings’ structure and systems, the amounts paid for the refresh of each building are not for any material additions to, or material increases in the capacity of, the buildings’ structure or systems as compared with the condition of the structure or systems after the previous refresh. Moreover, the amounts paid are not reasonably expected to materially increase the productivity, efficiency, strength, quality, or output of any building structure or system under as compared to the condition of the structures or systems after the previous refresh. Rather, the work performed keeps F’s store buildings’ structures and buildings’ systems in their ordinarily efficient operating condition. Therefore, F is not required to treat the amounts paid for the refresh of its store buildings’ structures and buildings’ systems as betterments under paragraphs (j)(1)(ii), (j)(1)(iii), and (j)(2)(iv) of this section. However, F is required to capitalize the amounts paid to acquire and install each section 1245 property in accordance with §1.263(a)-2(d)(1).

Watch this informative video to learning more about the Tangible Property Repair Regulations?

Recent Posts

grant support

Finding the Secret Door to Grants Support

Searching for grant support can feel like wandering through a maze, right? You spend hours online, only to find dead ends, hidden costs and unresponsive providers. It’s enough to make anyone want to throw in the towel. But what if we told you there’s a better way? The experts at ETS Grant Services recently did

Read More »
retroactive cost segregation

Unlock Profits With Retroactive Cost Segregation

Real estate, with its potential for appreciation and passive income, has long been a cornerstone of wealth building. However, maximizing returns goes beyond finding the right property; it requires savvy tax planning to keep more of your hard-earned income. This is where retroactive cost segregation emerges as a powerful, yet often overlooked, strategy for property

Read More »
aerospace field

R&D Tax Credits for the Aerospace Field

The global aerospace industry invests billions of dollars in research and development each year, driving groundbreaking advancements in technology and innovation. This massive investment underscores the industry’s commitment to pushing the boundaries of what is possible in aviation and space exploration. One way aerospace companies can offset these substantial R&D costs is through R&D tax credits.

Read More »

Contact Us