Generally, costs that result in an improvement to property must be capitalized and depreciated instead of expensing. Amounts paid for activities that result in any of the following result in an improvement: [Reg. §1.263(a)-3(d)]
Amounts that do not result in an improvement generally can be expensed as a repair.
Safe harbor for routine maintenance. Costs of regularly scheduled, routine maintenance do not have to be capitalized.
Safe harbor for small taxpayers. Taxpayers with average annual gross receipts for the last three tax years of $10 million or less can elect not to capitalize improvements to an eligible building property if the total amount paid during the year for repairs, maintenance, improvements and similar activities performed on the building does not exceed the lesser of: [Reg. §1.263(a)-3(h)]
Eligible building property includes buildings that the taxpayer owns or leases if their unadjusted basis is $1 million or less. For leased eligible building property, the $1 million refers to the total amount of (undiscounted) rent paid or expected to be paid.