Our business is currently exploring repairing our parking lot sealant and doing some re-pavement work on the lot. I'm wondering if this work is treated as an expense or should it be capitalized and depreciated over time?

ANSWER

The BIDaWIZ Team's Answer:

Typically, repairs of an existing surface can be treated as an expense for tax purposes. Any replacement work would generally be capitalized and depreciated over time. Thus, we would treat the parking lot sealing repair work as an expense and capitalize the re-pavement work. If the lot was partially paved and only parts need to be replaced, then you likely have sufficient basis to treat it as an expense. Please note that the Tax Court has recently ruled in favor of taxpayers that elect to expense cyclical costs such as parking lot sealant. Please reference IRS publications 527 and 946.