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painting exteriors or interiors of business build- ings, repairing broken window panes, replacing worn-out minor parts, sealing cracks and leaks, and changing oil or other fluids to maintain busi- ness equipment. Routine maintenance safe harbor. If you de- termine that your cost was for an improvement to a building or equipment, you can deduct your cost under the routine maintenance safe har- bor. Under the routine maintenance safe har- bor, you can deduct the costs of an improve- ment that meets all of the following criteria. • It is paid for recurring activities performed on tangible property. • It arises from the use of the property in your trade or business. • It keeps your property in an ordinarily effi- cient operating condition. • You reasonably expect, at the time the property is placed in service, to perform this activity:

For buildings and building systems, more than once during the 10-year pe- riod after you place the building in service; or

For other property, more than once during the class life of the particular type of property. For class lives, see Revenue Procedure 88-57, 1987-2 C.B. 674. Costs incurred during an improvement. You must capitalize both the direct and indirect costs of an improvement. Indirect costs include repairs and other expenses that directly benefit or are incurred by reason of your improvement. For example, if you improve the electrical sys- tem in your building, you must also capitalize the costs of repairing the holes that you made in walls to install the new wiring. This rule applies even if this work, performed by itself, would oth- erwise be treated as currently deductible repair costs. Election to capitalize repair and mainte- nance costs. You can elect to capitalize and depreciate certain amounts paid for repair and maintenance of tangible property, even if they do not improve your property. To qualify for this election, you must treat these amounts as capi- tal expenditures on your books and records used in figuring your income. If you make this election, you must apply it to all repair and maintenance costs of tangible property that you treat as capital expenditures on your books and records for this tax year. To make the election to treat repairs and maintenance as capital ex- penditures, attach a statement titled “Section 1.263(a)-3(n) Election” to your timely filed origi- nal tax return (including extensions) and include your name and address, TIN, and a statement that you elect to capitalize repair and mainte- nance costs under section 1.263(a)-3(n). You must treat these amounts as improvements to your tangible property and begin to depreciate these amounts when the improvement is placed in service. Capital Versus Deductible Expenses To help you distinguish between capital and de- ductible expenses, different examples are given below. Motor vehicles. You usually capitalize the cost of a motor vehicle you use in your busi- ness. You can recover its cost through annual deductions for depreciation. There are dollar limits on the depreciation you can claim each year on passenger automo- biles used in your business. See Pub. 463 for more information. Generally, repairs you make to your busi- ness vehicle are currently deductible. However, amounts you pay to improve your business ve- hicle are generally capital expenditures and are recovered through depreciation. Roads and driveways. The cost of building a private road on your business property and the cost of replacing a gravel driveway with a con- crete one are capital expenses you may be able to depreciate. The cost of maintaining a private road on your business property is a deductible expense. Tools. Unless the uniform capitalization rules apply, amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year or they cost $200 or less per item or invoice. Machinery parts. Unless the uniform capitali- zation rules apply, the cost of replacing short-lived parts of a machine to keep it in good working condition, but not to improve the ma- chine, is a deductible expense. Heating equipment. The cost of changing from one heating system to another is a capital expense. Deduction for qualified business income. For tax years beginning after 2017, you may be entitled to take a deduction of up to 20% of your qualified business income from your qualified trade or business, plus 20% of the aggregate amount of qualified real estate investment trust (REIT), and qualified publicly traded partnership income. The deduction is subject to various lim- itations, such as limitations based on the type of your trade or business, your taxable income, the amount of W-2 wages paid with respect to the qualified trade or business, and the unad- justed basis of qualified property held by your trade or business. You will claim this deduction on Form 1040, not on Schedule C or C-EZ. Un- like other deductions, this deduction can be taken in addition to the standard or itemized de- ductions. For more information, see the Instruc- tions for Form 1040 and Pub. 535. Personal Versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. However, if you have an ex- pense for something that is used partly for busi- ness and partly for personal purposes, divide the total cost between the business and per- sonal parts. You can deduct the business part. For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you generally can deduct 70% of the interest as a business expense. The re- maining 30% is personal interest and generally is not deductible. See chapter 4 for information on deducting interest and the allocation rules. Business use of your home. If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depre- ciation. To qualify to claim expenses for the busi- ness use of your home, you must meet both of the following tests. 1. The business part of your home must be used exclusively and regularly for your trade or business. 2. The business part of your home must be: a. Your principal place of business; or b. A place where you meet or deal with patients, clients, or customers in the normal course of your trade or busi- ness; or c. A separate structure (not attached to your home) used in connection with your trade or business. You generally do not have to meet the ex- clusive use test for the part of your home that you regularly use either for the storage of inven- tory or product samples, or as a daycare facility. Your home office qualifies as your principal place of business if you meet the following re- quirements. • You use the office exclusively and regu- larly for administrative or management ac- tivities of your trade or business. • You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. If you have more than one business loca- tion, determine your principal place of business based on the following factors. • The relative importance of the activities performed at each location. • If the relative importance factor does not determine your principal place of business, consider the time spent at each location. Optional safe harbor method. Individual taxpayers can use the optional safe harbor method to determine the amount of deductible expenses attributable to certain business use of a residence during the tax year. This method is an alternative to the calculation, allocation, and substantiation of actual expenses. The deduction under the optional method is limited to $1,500 per year based on $5 per square foot for up to 300 square feet. Under this method, you claim your allowable mortgage in- terest, real estate taxes, and casualty losses on the home as itemized deductions on Sched- ule A (Form 1040). You are not required to allo- cate these deductions between personal and business use, as is required under the regular Chapter 1 Deducting Business Expenses Page 5