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2014 Tangible Property Regulations - Routine Maintenance Safe Harbor

Routine Maintenance Safe Harbor

The final regulations continue to allow for a routine maintenance safe harbor for non-building property. However, the final regulations favorably expand the safe harbor to building property, with certain modifications to the general safe harbor rules. Under the final regulations, a taxpayer may apply the routine maintenance safe harbor to recurring activities undertaken to keep a building “Unit of Property” (UOP) in ordinarily efficient operating condition if the taxpayer "reasonably expects to perform the activities more than once during the 10-year period beginning at the time the building structure or building system upon which the routine maintenance is performed is placed in service by the taxpayer." Taxpayers should note that while a shortened 10-year period is provided for purposes of routine maintenance performed on building property, the final regulations continue to provide that for the safe harbor to apply to property other than buildings, the activities must be reasonably expected to be performed more than once during the alternative depreciation system (ADS) class life of the non-building property.

The final regulations also clarify that even if the routine maintenance activities are not in fact performed more than once during the applicable time frame, a taxpayer may still be able to apply the safe harbor if it can substantiate that it had at the time the property was placed in service a reasonable expectation that the activities would be performed more than once.

Finally, the safe harbor expressly excludes amounts paid for:

  • a betterment to the UOP;
  • an adaptation of the UOP to a new or different use;
  • a restoration to the UOP (other than rebuilding the UOP to a like-new condition after the end of its ADS class life or replacing a major component or substantial structural part);
  • the repair, maintenance or improvement of network assets;
  • and the repair, maintenance or improvement of rotable and temporary spare parts to which the optional method under Reg. section 1.162-3(e) is applied