New Tangible Property Regulations – Will your business be affected?
The IRS recently finalized mandatory regulations to distinguish capital expenditures from supplies, repairs, maintenance, and other deductible expenses – commonly known as the Repair Regulations. Every business that acquires, produces, or improves tangible property will need to address these new rules on their 2014 U.S. federal tax filing. These new rules are complex. These rules employ an entirely new process in determining when expenses can be deducted vs. capitalized.
However, the new rules are “taxpayer friendly.” These rules could result in significant benefits in the form of current deductions, resulting in a lower tax burden. In general, this potential benefit is only available if claimed on the original 2014 tax return. In order to comply with these new rules, additional forms, elections, statements, and other documentation are required to be filed with the IRS.
- Any business with tangible assets will need to formally adopt these regulations in 2014.
- These new rules change how capitalization of expenses has happened in the past. Instead of a specific dollar limit for capitalization, each expense is run through a set of qualifications to determine whether it can be expensed or capitalized. These rules generally allow for a more favorable result for taxpayers.
- These new rules more clearly define the treatment of expense or capitalization in the following areas:
- Materials and Supplies
- Costs to acquire/produce tangible property
- Costs to improve tangible property
- Dispositions of tangible property
- Specific exceptions are provided to allow for deducting expenditures immediately.
- In 2014, the IRS requires the adoption of these rules through specific filings with the IRS. These filings are both prospective and retroactive:
- Certain elections and forms need to be made to adopt the more liberal expensing rules for the current and future years. Certain small businesses have been allowed simplified methods to comply with the new regulations for 2014 and beyond.
- Retroactive application of the new rules is allowed for the treatment of prior year capitalization, potentially resulting in current year deductions. Additional forms applying a change to prior years are required with the 2014 tax return.
As a trusted partner, our experienced and knowledgeable team of experts is ready to navigate this law change for the best possible result. The SQUIRE team can provide guidance, consultation, analysis and preparation of the mandatory filings required under these regulations. Contact our Repair Regulation Experts today:
Brandon Allfrey, CPA, CGMA – Tax Partner
Charlotte Clark, CPA – Tax Manager
Joe Hillstead, CPA – Tax Manager
Author: Brandon Allfrey, Squire Tax Partner VIEW BIO