How to categorize maintenance expenses?
Maintenance expenses are operating costs that keep business assets in working condition. They’re fully deductible when routine but must be capitalized if they improve or extend an asset’s useful life.
What is a maintenance expense?
Maintenance expenses are considered operating costs that cover regularly servicing, repairing, or inspecting business assets to ensure they continue operating efficiently. They differ from capital improvements, which increase an asset’s value or extend its lifespan, because maintenance simply preserves existing functionality.
How to categorize maintenance expenses
- Record as Operating Expenses in your income statement.
- Use a “Repairs and Maintenance” or “Maintenance Expense” account in your chart of accounts.
- Classify as Indirect Costs or Overhead unless tied to a specific project (e.g., machine repairs on a job site).
- For project-based businesses, allocate maintenance directly to the project if it’s required for completion.
- Capitalize only if the maintenance significantly improves or extends the asset’s useful life.
Examples of maintenance expenses
- Routine servicing of machinery or equipment.
- HVAC system cleaning or filter replacement.
- Vehicle oil changes and tire rotations.
- Computer system updates or IT maintenance contracts.
- Building or facility upkeep (plumbing, electrical, minor repairs).
- Elevator, fire safety, or security system inspections.
- Cleaning and janitorial maintenance related to asset care.
Tax implications for maintenance expenses
- Ordinary maintenance expenses are fully tax-deductible in the year incurred.
- Major repairs or improvements that add value must be capitalized and depreciated over time.
- The IRS Safe Harbor Election allows small businesses to expense certain repairs and maintenance under $2,500 per invoice or item.
- Maintenance performed as part of routine service contracts (e.g., annual equipment checks) is deductible.
- Keep invoices, service records, and maintenance schedules to distinguish between deductible repairs and capitalized improvements.
