The new tangible property regulations, commonly referred to as repair regulations, issued by the IRS are a significant overhaul of rules impacting virtually all taxpayers that acquire, produce or improve tangible property. These regulations outline new criteria for taxpayers to use in determining whether an expenditure should be deducted currently or capitalized. Past criteria that were used to determine if an expenditure should have been capitalized are no longer considerations or determinants. Taxpayers must now only employ the new capitalization criteria of restoration, adaption, betterment or improvement – the RABI rules – or risk losing deductions that were incorrectly capitalized.
Businesses of all kinds may be affected by the new tangible property repair regulations outlined in Section 263(a) and most likely will need to file at least one change in accounting method (Form 3115, Application for Change in Accounting Method) with their 2014 income tax returns to comply. Additionally, these new regulations will require many taxpayers to:
- Determine and file annual new elections, such as the new "de minimis" safe harbor election that will allow a taxpayer to write off items of a certain dollar amount and under, such as all qualified items $5,000 and underDefer, i.e. not write off currently, some material and supply purchases
- Modify internal processes to comply with these new rules (such as a capitalization policy)
- Modify current and future documents (such as landlord/tenant leases)
- Change business practices (from landlord/tenant leasehold improvements negotiations to separating out removal costs on future invoices for improvement expenditures)
- Scrub the tax depreciation schedule to match the items on that schedule with the new criteria to determine if past capitalized items must now be written off, and/or to verify asset class lives
Rehmann principal Andy Rose addresses the frequently asked questions surrounding the new tangible property repair regulations.
Tangible Property Repair Regulations Consulting from Rehmann
Rehmann's tangible property repair regulations consulting team is well-trained to help businesses navigate the new rules. We can help you review the effect these new regulations may have on your business and determine the accounting method changes that are needed to achieve compliance. In fact, according to one industry poll, Rehmann is part of a small percentage of firms fully prepped to help clients with these regulations. (Wolters Kluer, 2015). In addition, we will compute any tax deductions that may result from adopting the regulations and discuss with you the annual elections created by the new regulations that may be beneficial for you to make on your future tax returns.
|These new tangible property repair regulations may require significant changes to your business’ accounting procedures. For compliance assistance, contact our experienced team of tax professionals today.|