049. Distinguishing Construction Cost From Repair And Maintenance Expense

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The Federal Tax Court rendered a series of decisions in 1995 dealing with the distinction between construction cost (must be capitalised) and repair and maintenance expense (fully deductible when incurred) (see in particular BFHE 177, 454 of 9 May 1995 and BStBl II 1996, 132 of 19 September 1995).

Maintenance expense covers regular repair and maintenance costs. With respect to a building, such costs are necessitated by normal use. They include expenditure for the replacement of existing fixtures and equipment such as replacement of windows or installation of a new heating system. It generally makes no difference whether the newly installed facilities are materially superior to the ones they replace as long as the new facilities are reasonable from a contemporary point of view. Construction cost is expenditure for goods and