New Repair Regulations
Distinguishing capital expenditures from deductible expenses
The IRS recently finalized mandatory regulations that help distinguish capital expenditures from supplies, repairs, maintenance and other deductible expenses. These regulations require a significant investment in time and talent to assure compliance. Virtually every business that acquires, produces or improves tangible property must comply with these new rules for the tax year beginning on or after January 1, 2014.
The new rules are “taxpayer friendly” from the standpoint of providing guidance for accelerating deductions for certain tangible property expenses under new criteria for treating expenses as materials and supplies, repairs and maintenance or improvements to tangible property.
Businesses will need to address the new tangible property regulations beginning with their 2014 tax return. This will require each business to adopt new accounting methods with the IRS. This change in the regulations will mean that most taxpayers will be required to file Form 3115 – Application for Change in Method of Accounting for the 2014 year.
Recently, new guidelines were issued to simplify the process for adopting the new rules for some businesses. These regulations can be retroactively applied to previously capitalized assets to determine if a catch-up adjustment should be made in the current year. Businesses which elect to apply the new rules to previous years need to file additional forms with the IRS to adopt these regulations and claim the adjustment on their 2014 tax return.
The application of the new regulations provides value to you by increasing your ability to deduct tangible property expenses sooner than you have previously. The benefit of adjusting prior year capitalized expenses is only available for a 2014 tax return.
Steven Blumenthal, CPA is a principal at MBAF CPA’s LLC in New York City. He can be reached at (212) 931-9254 or firstname.lastname@example.org.