Can I deduct checks for repairs on my rental property?

By Jeffrey Brooks, CPA, CFP, MBA for JBrooks Wealth Advisors, PC, a Professional CPA and CFP firm. 602-292-2009.

The IRS audits that I have seen regarding real estate rental property concerns the cost of repairs that you make to your rental property is deductible in the year paid. In contrast, improvements on the same property are capital in nature, and their cost must be recovered through depreciation deductions spread over the applicable recovery period. Does this make sense to you?
In most cases, the taxpayer would pay less immediate taxes by classifying the expenditure as a repair and taking a current deduction, rather than by capitalizing the expense and recovering the cost by way of depreciation.
Given this fact, it is no wonder that most taxpayers take a very aggressive position classifying most, if not all, of their expenditures as repairs. Knowing this, it should be no surprise that IRS agents will pay close attention to repair and maintenance deductions claimed on your tax return.
This article will first review how the government goes about defining and differentiating between repairs and improvements; suggest strategies to help you maximize your ability to classify expenditures as repairs; and finally inform you how to maximize the deduction for those items that you are forced to capitalize.
How does IRS determine if the expenditure is a a repair (deductible when paid) or capital (Deducted over many years through what is called deprecation)?
“A repair keeps your property in good operating condition. It does not materially add to the value of your property or substantially prolong its life.”
“An improvement adds to the value of property, prolongs its useful life, or adapts it to new uses.”
Although these definitions are relatively simple, in practice there has been a great deal of difficulty in distinguishing between repairs and improvements. There is no official IRS checklist.
The Department of Treasury, which is responsible for setting up formal rules and regulations for enforcing tax law, distinguishes between repairs and improvements in Reg. Section 1.162-4 as follows:
“cost of incidental repairs which neither materially add to the value of the property nor appreciably prolong its life, but keep it in an ordinarily efficient operating condition, may be deducted as an expense… repairs in the nature of replacements, to the extent that they arrest deterioration and appreciably prolong the life of the property, shall be capitalized and depreciated”
The Tax Courts have had to deal with this problem for years, and thus have developed case law to address it. The case law that is most often quoted on the distinction between repairs and capital improvements reads as follows:
“In determining whether an expenditure is a capital one or is chargeable against operating income, it is necessary to bear in mind the purpose for which the expenditure was made. To repair is to restore to a sound state or to mend, while a replacement connotes a substitution. A repair is an expenditure for the purpose of keeping the property in an ordinarily efficient operating condition. It does not add to the value of the property, nor does it appreciably prolong its life. It merely keeps the property in an operating condition over its probable useful life for the uses for which it was acquired. Expenditures for that purpose are distinguishable from those for replacements, alterations, improvements, or additions which prolong the life of the property, increase its value, or make it adaptable to a different use.”
Despite these attempts to define the distinction between repairs and capital improvements, it is apparent that the decision will depend on the facts and circumstances of the specific situation and the actual deductions claimed.
Renovation of your property. Problems usually arise when the items which are claimed to be repairs are expended as part of a general plan of improvement, restoration, or betterment of the property. An example would be if a tenant trashes your property or if you purchase a “fixer upper” and you pay for a series of repairs that improves the property.
The reality is that when one has a general plan of rehabilitation and permanent improvement of a property, expenditures which are part of this general plan, and which might otherwise constitute deductible expense for repairs, will often be a disallowed deduction.
Therefore, if you will be making expenditures which will otherwise be deductible as repairs, it is best not to undertake them at the same time that other more major expenditures are contemplated. If these repair-type expenditures are claimed as a deduction at the same time that substantial capital improvements are taking place or when there is a general plan of renovation of the building, a deduction is more likely to be denied or questioned. You would be better off trying to incur these expenses within a different taxable year. It is also a good idea to keep records (invoices, work orders, etc.) that will help you prove that the repairs claimed are separate from the extensive improvements being made.
It is very important to realize that the larger the expenditure, the greater the tendency of the government (the IRS as well as the courts) to look at it as being capital in nature (and not immediately deductible!) Although this is not universally the rule, the government usually falls into this trap. Thus, if considerable amounts for repairs are being undertaken, it may be advisable from a tax-planning standpoint to separate these expenditures over a longer period of time. In conjunction, documentation should also be made to support a future case as to why particular expenditures are in the nature of a repair. In other words, anything that you can do to help support a repair claim should be done prior to, during, and after the expenditure.
It is also important to remember that repair and maintenance deductions are among those to which IRS agents will generally pay close attention. They are instructed to require “full substantiation” in order to allow the deduction. It is up to you to prove that you actually instituted a repair and that the amount you claimed for it is correct (via a bill/receipt and cancelled check). You might also be asked to prove that the expected life of the expenditure is such that it is indeed a repair, versus a capital improvement.
How do you prove to IRS that your expenditure is a repair and not to be capitalized and depreciated over a number of years(could be as many as 27.5 years)?
Again, repairs are deductible if they do not materially add to the value of your property and do not materially prolong the life of the property over the value and life of the property “before the event occurred which made the repairs necessary.” If a repair was not designed to increase the value of the property, prolong its life, or adapt it to a different use, a current deduction will be allowed even for a costly outlay. In other words, the mere fact that the cost of the repair was substantial does not disqualify the deduction for a repair which otherwise would qualify.
When a broken or damaged item is replaced by a new one, the fact that the new item may have a useful life of more than one year will not necessarily bar deduction of its cost as a repair expense provided that the new item itself does not prolong the life or increase the value of the basic property.
When a city, as a safety measure or for compliance purposes, orders the property owner to replace or repair a part of a building, the cost will be held to be a currently deductible repair if the expenditure did not increase the value of the building or increase its life.
Be careful to plan for expenditures BEFORE you rent the property!
Just because a rental unit is vacant, does not mean that you are forced to capitalize your operating expenses. You see, “if you hold your property for rental purposes, you may deduct your ordinary and necessary expenses for managing, conserving, or maintaining the property.” The key is to make sure that you hold your property for rental purposes by making it available for rent (by posting a sign, running a newspaper ad, etc.). In the event that your unit remains empty, thus keeping your rental income low, it is important that you keep proof that the unit was available for rent should the deduction be challenged by the IRS.
How do I handle Additions or Improvements to Property?
In general, nondeductible capital expenditures are amounts paid or incurred to add to the value or to substantially prolong the useful life of property or to adapt the property to a new or different use. Thus, no current deduction is allowed for any such amount paid. “Face-lifting” costs which improve a property’s appearance and increase its value are also considered capital improvements. Expenditures for items that were originally capitalized, were fully depreciated, and subsequently replaced must also be capitalized.
Capitalized expenditures, which are depreciable, must now conform to the more restrictive Modified Accelerated Cost Recovery System (MACRS), which was introduced with the 1986 tax reform initiative. For residential rental property, the depreciable method and life is, by law, straight line and 27.5 years. For commercial property, the depreciable life is, by law, 39.5 years. No wonder we are aggressive with what we regard as a repair versus an improvement!
The good news is that a property owner can still break out the personal property portion of a building and receive larger depreciation deductions due to the fact that personal property items are subject to more favorable depreciation treatment. Specifically, personal property items can be classified as having a useful life of seven years (versus 27.5). For rental property owners, personal property consists of items such as capitalized: carpets; draperies and blinds; stoves; refrigerators; washing machines; garbage disposals; furniture; air conditioning units.
In closing, we would like to suggest that you do your homework whenever expending money on repairing and/or improving your property. With adequate planning and documentation, you should be able to maximize your currently deductible expenditures and support your position should there be an IRS audit. Make sure that you review your deductions and/or strategy with your tax preparer, who should be able to advise you what to do prior to the expenditure, as well as how to best document the expenditure for your records and tax returns.
IRS Audit Guide: Table of what is a repair expense and what is a capitalizable item (I have copied and pasted the IRS audit guide at the end of this article)
Capital Repair
Improvements that “put” property in a better operating condition Improvements that “keep” property in efficient operating condition
Restores the property to a “like new” condition Restores the property to its previous condition
Addition of new or replacement components or material sub-components to property Protects the underlying property through routine maintenance
Addition of upgrades or modifications to property Incidental Repair to property
Enhances the value of the property in the nature of a betterment
Extends the useful life of the property
Improves the efficiency of the property
Improves the quality of the property
Increases the strength of the property
Increases the capacity of the property
Ameliorates a material condition or defect
Adapts the property to a new use
Plan of Rehabilitation Doctrine

Basic principles
Taxation Ruling TR 97/23 discusses the meaning of ’repair’ in the context of s 25-10. The relevant points of the ruling are set out below.
The word ‘repairs’ has its ordinary meaning. It ordinarily means the remedying or making good of defects in, damage to, or deterioration of, the property to be repaired (being defects, damage or deterioration in a mechanical and physical sense) and contemplates the continued existence of the property (para 13).
A repair involves restoration of the efficiency of function of the property being repaired without changing its character and may include restoration to its former appearance, form, state or condition. A repair merely replaces a part of something or corrects something that is already there and has become worn out or dilapidated (para 15).
The work may go beyond ‘repairs’ in terms of s 25-10 if it: (a) changes the character of the property; or (b) does more than restore its efficiency of function (para 22). See also ATO ID 2003/222.
In certain situations, expenditure for repairs to property is considered to be capital expenditure:
• where the expenditure, rather than being for work done to restore the property by renewal or replacement of subsidiary parts of a whole, is for work that is a renewal on the sense of reconstruction of the entirety (para 32); or
• where renewal or reconstruction, as distinguished from repair, is restoration of the entirety (para 36).
The term ‘entirety’ is used by the courts in repair cases to refer to something ‘separately identifiable as a principal item of capital equipment’ (Lindsay v FCT (1960) 106 CLR 377 at 385), ’a physical thing which satisfies a particular notion’ (the Lindsay case at 384)) and ’not necessarily the whole, but substantially the whole of the [property] under discussion’ (the Lindsay case at 383-4) (para 37).
Property is more likely to be an entirety if:
(a) the property is separately identifiable as a principal item of capital equipment; or
(b) the thing or structure is an integral part, but only a part, of entire premises and is capable of providing a useful function without regard to any other part of the premises; or
(c) the thing or structure is a separate and distinct item of plant in itself from the thing or structure which it serves (para 38).
Application of these principles
New hot water system — the replacement of a depreciable asset such as a hot water system would not be considered a repair for tax purposes. Accordingly, the new hot water system would be depreciable under Div 40.
Painting internal surfaces — if the painting involves a full refurbishment, which results in the interiors being changed, updated, upgraded or otherwise improved (ie the new asset is different either in form, quality or functionality than the original), the costs would be on capital account. Note that the refurbishment costs should be capitalized as structural improvements where they are integral to the structure and should be depreciated if they relate to fixtures, fittings or generally anything removable intact. Otherwise, if the painting merely puts the internal surfaces back to the condition that they were in, eg before the surface was damaged, the costs should be deductible as repair costs.
Replacing emergency lights — as with the hot water system, the new lights would generally be considered to be the replacement of depreciable assets and therefore not repairs.
This issue appeared recently in Thomson Reuters Tax Q&A. Tax Q&A is issues based and uses actual scenarios confronted in practice to help you
For more information, here is the IRS AUDIT GUIDE FOR RECLASSIFYING REPAIRS (deducted when paid in the current year verus deducted over 15 or 27.5 years when considered a capitalized cost)
. Review Costs Reclassified as Repairs
1. Analyze detailed records to determine the reason the work was undertaken. Consider carefully all underlying documentation including Management Reports, Engineering Assessments and Invoice Language.
2. Determine extent to which costs were treated as UOP separate from the primary UOP.
3. Determine asset’s age, acquisition date, and any prior completed work that is related to that asset.
4. Determine the purpose of project. Consider what was done, why it was done and the dates the project began and ended. Consider how soon the work will have to be repeated. Consider Long-Term projects and consider whether expenditures:
1. Result in new assets.
2. Improve the property, putting it in a better operating condition.
3. Add new components or material sub-components.
4. Add upgrades or modifications.
5. Enhance the value of the property in the nature of a betterment.
6. Extend the useful life of the property.
7. Improve the efficiency, quality, strength, or capacity of the property. viii. Adapt the property to a new use.
5. APPENDIX B: Capitalization vs. Repairs
6. History
7. Since the Reconstruction Era Income Tax Act of 1870, there has been a deduction limitation that prohibits a taxpayer from deducting amounts paid for new buildings, permanent improvements, or betterments made to increase the value of property. While this concept has been recognized as part of tax law almost from its inception, exactly what must be capitalized and what may be currently deducted has been at issue ever since.
8. In general, the costs incurred to create or enhance an asset must be capitalized under § 263(a) Commissioner v. Lincoln Savings & Loan Association, 403 U.S. 345 (1971). However, the mere presence of an ensuing benefit that extends beyond the current year is not controlling and many expenses have prospective effect beyond the taxable year. Therefore, a future benefit alone does not warrant capitalization.
9. The Supreme Court has recognized that the decisive distinctions between current expenses and capital expenditures are those of degree and not of kind. Welch v. Helvering, 290 U.S. 111 (1933); INDOPCO, Inc. v. Commissioner, 503 U.S. 79 (1992). Careful examination of the particular facts and circumstances in each case is required to determine whether a current deduction or capitalization is the appropriate tax treatment, Deputy v. Du Pont, 308 U.S. 488 (1940). Income tax deductions are a matter of legislative grace, and the taxpayer has the burden of clearly showing the right to the claimed deduction.
10. Current Law
11. Section 263(a)(1) provides that no deduction shall be allowed for any amounts paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate. See also Treas. Reg. § 1.263(a)-1(a)(1). Section 263(a)(2) prohibits a deduction for amounts expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made.
12. Section 263A, enacted in 1986, also applies to property produced by the taxpayer for use in its business or an activity conducted for profit. For example, if a company constructs an addition to their building, § 263A requires that direct and indirect costs of construction be added to the building’s basis. This includes the requirement for capitalization of construction period interest. Section 263A(g)(1) defines the term “produce” to include construct, build, install, manufacture, develop or improve.
13. Capitalization is the proper treatment for expenditures incurred in new construction. See §§ 263(a) and 263A. Capitalization is also generally required for additions to existing buildings or for installations of material components to buildings or equipment.
14. Treas. Reg. § 1.263(a)-1(b) provides that capital expenditures include amounts paid or incurred to (1) add to the value, or substantially prolong the useful life of property owned by the taxpayer, such as plant or equipment or (2) adapt property to a new or different use. The regulation further provides that amounts paid or incurred for incidental repairs and maintenance of property within the meaning of § 162 and Treas. Reg. § 1.162-4 are not capital expenditures.
15. Section 162 provides a deduction for all ordinary and necessary business expenses paid or incurred during the taxable year in carrying on a trade or business. Treas. Reg. § 1.162-4 provides that the cost of incidental repairs which neither materially add to the value of the property nor appreciably prolong its life, but keep it in an ordinarily efficient operating condition, may be deducted. However, this regulation also provides that repairs in the nature of replacements, to the extent that they arrest deterioration and appreciably prolong the useful life of the property, shall either be capitalized and depreciated in accordance with § 167 or charged against the depreciation reserve.
16. While an increase in value is indicative of a capital expenditure, the term value is not defined in the Code, regulations, or by case law. There is no bright line test.
17. Quite frequently, new additions are made to already existing property. These additions are not replacement components nor are they repairs to property, but are instead newly installed components. These additions are required to be capitalized. This requirement applies to both § 1245 and § 1250 property.
18. At other times, replacement parts or components are added. For example, a car’s engine is worn out and replaced. This replacement returns the car back to its condition prior to the deterioration of the part. It would be logical to consider this replacement as an increase to the car’s value resulting in capitalization. Conversely, it would also make sense to say that by returning the car back to its prior condition, it had been repaired. Under this theory, all repairs would be deductible under § 162(a), no matter how substantial they might be. This interpretation would render meaningless any distinction between a deductible business expense and a capital expenditure. Thus, it is oftentimes insufficient to merely look at increased value as the determinative factor for the purpose of characterizing the replacement of a part or component. An increase in value is one of many factors that must be considered to determine deductibility or capitalization. This situation was well summarized by the court in Smith v Commissioner, 300 F3d. 1023, 1031 (9th Cir. 2002):
19. Viewed in isolation, Vanalco’s argument regarding Plainfield-Union’s value test makes intuitive sense: any increase in property value attributed to repairs must be assessed relative to the condition of the property in its original functioning state. Otherwise, every repair would be deemed a capital expenditure since it would always be the case that a repair would enhance the value of property relative to its deteriorated condition. However, the interpretation that Vanalco proposes similarly proves too much. Clearly, any replacement of a machine’s worn out part would return the machine back to its condition prior to the deterioration of the part. Under this logic, all repairs would be deductible under § 162(a), no matter how substantial they might be. Thus, replacing the engine in a car would constitute a deductible business expense to the same extent as would replacing the tires. This result would be contrary to existing precedent, see LaSalle Trucking Co. v. Commissioner, T.C. Memo. 1963-274 (holding that the cost of replacing a truck engine was not deductible as a repair), and would render meaningless any distinction between a business expense and capital expenditure.
20. Thus, it is insufficient merely to look at increased value as the determinative factor for the purposes of characterizing the cell relining costs. Instead, a court must look beyond the increased value test to other indicia of deductibility or capitalization. For instance, it is inescapable that the relative importance of a component part will play a vital role in determining whether its replacement is treated as an ordinary and necessary business expense or a capital expenditure. That is, in order to determine whether a repair is “incidental” in the sense that it is only necessary to maintain property in an efficient operating condition, the significance of the part under repair to the operation of the property is a critical inquiry.
21. Although the high cost of the work performed may also be considered in determining whether an expenditure is capital in nature, cost alone is not dispositive. Compare R.R. Hensler, Inc. v. Commissioner, 73 T.C. 168 (1979), acq. in result, 1980-2 C.B. 1, where the fact that taxpayer’s expense was large did not change its character as ordinary, and Griffin v Commissioner, T.C. Memo 1995-404, where the installation of a trailer hitch resulted in a modification to a pickup truck in the nature of a capital expenditure.
22. Whether expenditures for repairs or restorations are required to be capitalized or currently deducted can better be understood through a review of current law. Rev. Rul. 2001-4, 2001-1 C.B. 295, is a good starting point as it provides a general explanation of current law for capitalization. In this Revenue Ruling, the IRS addressed three situations to determine whether a commercial airline was required to capitalize costs incurred for work performed on its aircraft and airframes. Three distinct scenarios complete with supporting law demonstrate how the purpose, physical nature and effect of the work performed will result in decidedly different tax treatments.
23. In scenario 1, costs incurred constitute repairs because there are no replacements of any major component or substantial structural parts. There is no increase in value or useful life; nor is the work completed under a plan of rehabilitation. The work serves to keep the airframe in an ordinarily efficient operating condition.
24. In scenario 2, the work performed results in an allocation of costs. The costs similar to scenario 1 are afforded treatment as a repair. However, costs incurred to rebuild a significant portion of a structural component of the aircraft and to install modifications are required to be capitalized.
25. The facts in scenario 3 result in capitalization of all costs incurred. This situation describes substantial improvements to an aircraft nearing the end of its useful life. The work done extends the useful life, modifies the structure, adds new components and upgrades equipment. Because an improvement constitutes production of property, § 263A(g)(1) applies and indirect costs are also required to be capitalized. In this case, the Plan of Rehabilitation Doctrine is applicable.
26. There is significant case law and additional guidance addressing capitalization. As stated in American Bemberg Corp. v. Commissioner, 10 T.C. 361, 376 (1948), aff’d, 177 F 2d 200 (6th Cir. 1949), “[i]t is appropriate to consider the purpose, the physical nature and the effect of the work for which the expenditures were made.”
27. The following table summarizes many of the factual considerations considered by the courts. These factors, although not exhaustive, should be considered in your analysis to distinguish between capital expenditures and deductible repairs.
28. Improvements that Put vs. Keep Property in Efficient Operating Condition
29. The courts have distinguished between deductible repairs and non-deductible capital improvements based on whether the expenditure puts or keeps the property in an ordinary efficient operating condition. As stated by the Third Circuit in Estate of Walling v. Commissioner, 373 F.2d 190, 192-193 (3rd Cir. 1967), the relevant distinction between capital improvements and repairs is whether the expenditures were made to “put” or “keep” property in ordinary efficient operating condition. If improvements are made that ‘put’ the particular capital asset in efficient operating condition, then they are capital in nature. If, however, they are made merely to ‘keep’ the asset in efficient operating condition, they constitute repairs and are deductible.” See also Moss v. Commissioner, 831 F.2d 833, 835 (9th Cir. 1987) (quoting Estate of Walling).
30. As explained in Illinois Merchants Trust Co. v. Commissioner, 4 B.T.A. 103, 106 (1926), acq., C.B. V-2, 2, in the determination as to whether an expenditure is a capital one, it is necessary to keep in mind the purpose for which the expenditure was made. Here the court found that the expenditures were made for the purpose of keeping the property in ordinarily efficient operating condition over its probable useful life for the uses for which the property was acquired. The court went on to explain that the expenditures did not replace, alter or improve the property nor did they add to the property, appreciably prolong the life of the property, increase its value, or make it adaptable to a different use.
31. Restores the Property to a “Like New” Condition
32. In Ruane v. Commissioner, T.C. Memo, 1958-175, amounts expended for reconditioning coke ovens were required to be capitalized. The court stated that, “the work performed on the ovens appreciably prolonged their life and, in fact, gave them a new life.” A similar conclusion was reached by the court in Electric Energy, Inc. v. United States, 13 Cl. Ct. 644 (1987), where the taxpayer testified that a normal operating life for an economizer was 25-30 years. After work was performed on the economizer’s horizontal elements, it was expected that the economizer would last 40 or more years due to the elimination of the inherent problem of the tight spacing and the staggered arrangement. The wholesale replacement of the horizontal elements prolonged the life of the economizer requiring capitalization.
33. In Hudlow v. Commissioner, T.C. Memo 1971-218 (issue 9), the court recognized that while the cost of work performed on forklift trucks to get them operating again each time they broke down might have qualified as repair expenses; the work done in this case represented the replacement of major parts, not just to repair a breakdown, but to put the machines into such condition that they would no longer be unduly susceptible to breakdowns. These forklifts were substantially worn out and the work was in the nature of an overhaul, which served to prolong the life of the machines and to increase their value. See also Almac’s, Inc. v. Commissioner, T.C. Memo 1961-13, (re-tubing of a boiler after 27 years extended its useful life by more than a year or two); Phillips & Easton Supply Co. v. Commissioner, 20 T.C. 455 (1953), (installing a new floor in the taxpayer’s building was a capital expenditure where the old floor was 46 years old and had deteriorated so that further repairs were not practical); Denver & Rio Grande W. R.R. Co. v. Commissioner, 279 F.2d 368 (10th Cir. 1960), (substantial restoration, strengthening and improvement of a viaduct was not for incidental repairs but for a replacement of a major portion of the viaduct, which could no longer be repaired).
34. The Service also recognizes that costs to restore property to a like new condition must be capitalized. For example, in Rev. Rul. 88-57, 1988-2 C.B. 36, costs incurred for freight car cyclical rehabilitations constitute capital expenditures. In this ruling, a railroad established a program for cyclical rehabilitations of its freight cars. After 8 to 10 years of service, the cars were completely disassembled, inspected, and reconditioned. Essentially, the work included replacement or reconditioning of all the freight cars’ structural components. According to the ruling, without these rehabilitations, the freight cars would have had a service life of 12 to 14 years. However, after the rehabilitation, the cars had a new service life of 12 to 14 additional years. With repeated rehabilitations, the cars were expected to have a service life in excess of 30 years. These rehabilitations increased the value and prolonged the useful life of the freight cars. The key distinction was that the work was done when the asset was near the end of its useful life. The work did not merely restore the property to the condition it was in prior to the repair; rather, it prolonged the useful life of the equipment another 12-14 years. In this case, the plan of rehabilitation doctrine also applied.
35. Restores the Property to its Previous Condition
36. In the case of Plainfield-Union Water Co. v. Commissioner, 39 T.C. 333 (1962), nonacq., on other grounds, 1964-2 C.B. 3, the Tax Court determined that if the expenditure merely restores the property to the state it was in before the repair was required and does not make the property more valuable, more useful, or longer-lived, it is usually considered a deductible repair. The petitioner in this case, cleaned and lined approximately one-half of one percent of its water pipelines. This work was done to repair the damage caused by acidic water flowing through a small portion of its system. With the exception of three cleanings done shortly after the introduction of this acidic water to this portion of its system, the petitioner had never before experienced a need to clean its pipelines nor afterwards was there any indication that further cleaning or relining would be needed. This work corrected the problem the petitioner was experiencing due to the acidic water. Considering the facts in this case, the court found that these costs should be treated as a repair.
37. The Plainfield-Union Test generally measures the value, use, life expectancy, strength, or capacity of the property after the expenditure with the status of the property before the condition necessitating the expenditure arose. See also, Norwest Corp. & Subs. v. Commissioner, 108 T.C. 265, 279-280 (1997); an expenditure that returns property to the state it was in before the situation prompting the expenditure arose is usually deemed a deductible repair. A capital expenditure is generally considered to be a more permanent improvement in the longevity, utility, or worth of the property, Smith v. Commissioner, 300 F.3d 1023 (9th Cir. 2002).

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