Collaboration between managers and CPAs leads to clearer, more accurate CAPEX decisions grounded in real‑world context and tax rules.
Capital expenditure (CAPEX) decisions often appear straightforward — roofs get repaired, HVAC units get replaced, common areas get refreshed. But every expenditure carries a question: Is this a repair or an improvement? And behind that question sits an essential partnership: management, who understands the operational realities, and the CPA, who interprets the IRS’ Tangible Property Regulations (TPRs) to determine proper tax treatment.
Real estate owners will always have aging systems, modernization needs, and tenant-driven turnover. CPAs will always bring the technical framework that governs how those expenditures should be treated. When these perspectives come together, CAPEX analysis becomes less about compliance and more about accurately telling the story of a property.
To illustrate how this collaboration creates better outcomes, consider the following common scenario.
A property refresh, and the first call
Sun Residences, a mid sized multifamily operator, spent the past year refreshing one of its older communities. On paper, nothing looked unusual: a few HVAC units replaced as they failed, several units repainted, carpet replaced on a couple of floors, and concrete repairs.
For Manny, the property manager, this was simply routine upkeep — the type of work that keeps residents happy and operations smooth. He categorized most costs as “repairs,” consistent with the company’s history. Before closing the books, he sent the details to the CPA team led by Alice, who had worked with Sun Residences for years. His email was brief and practical: “Here’s the list of repairs for the Grandview property. Let me know if anything looks off.”
The CPA’s review: Technical framework meets operational reality
When Alice reviewed the schedule, she didn’t immediately label each line as a repair or an improvement. Instead, she sought the story behind the numbers. Under the TPRs, each expenditure must be evaluated to determine whether it improves, restores, or adapts a unit of property — something that requires context. She called Manny.
“Were the HVAC units replaced individually as they failed,” she asked, “or was this part of a larger system-wide plan?”
“Just one-offs,” Manny replied. “Each one was replaced as needed. No effort to upgrade the entire system.”
That mattered. Routine, isolated component replacements often fall squarely within deductible repairs. The same pattern held for the painting and carpet replacements: limited scope, no wholesale refresh, and consistent with expensing under the TPRs.
She moved on to the painting and carpet replacements, and the pattern repeated: routine repairs, not a wholesale refresh, making the choice to expense appropriate again.
The process was efficient because each brought what the other needed: Manny supplied the operational facts, Alice applied the technical lens.
The one item that needed a closer look
One line item, though, raised a flag: a large project involving the reinforcement and partial replacement of several structural support pillars in the building’s lower level. The initial description sounded like a repair — addressing cracks and deterioration that had begun to appear over the past few years.
But additional questions revealed more. The work included replacement of major sections of multiple pillars, steel core reinforcement, and comprehensive concrete reconstruction. Engineers recommended the work due to deeper deterioration beyond surface defects.
Manny viewed the project as necessary maintenance — “We had to keep the building safe,” he said. But the scope suggested something more significant. Under the TPRs, significant restoration or rebuilding of structural components typically indicates a capital improvement.
Once Alice explained the regulatory framework, Manny agreed. They documented the facts and treated the project as a capital improvement.
The power of two perspectives
By the end of the process, almost all of Sun Residences’ expenditures were appropriately categorized as repairs, with only the structural work requiring capitalization. The outcome felt natural and an example of how collaboration can lead to defensible, well‑supported decisions.
Manny’s operational insight provided essential context. Alice’s technical review supported compliance with the TPRs. Together, they arrived at conclusions that accurately reflected the work performed.
When management and CPAs engage in open, informed dialogue, CAPEX decisions become clearer, more consistent, and more aligned with the true nature of the asset. It goes beyond navigating the applicable regulations. It’s about understanding and communicating the story of the property.
How CLA can help
CLA combines industry insight with deep technical capabilities to help real estate owners confidently navigate CAPEX decisions. We collaborate with management to understand the operational intent behind each project and apply TPRs in a practical, consistent way.
We also bring forward‑looking federal tax strategies that help owners align CAPEX decisions with their overall tax position. Our goal is to deliver clear, defensible conclusions that reflect the true nature of the work and support the long‑term stewardship of your assets.