Capitalizing or Deducting Under Tangible Property Regulations for Tax Year 2014
In late 2014 the IRS finalized the proposed regulations governing the tax treatment of amounts paid to acquire, produce or improve real or tangible property, as well as the tax treatment of certain dispositions of these items. The regulations apply to tax years beginning on or after January 1, 2014. All businesses that have depreciable assets, materials and supplies, spare parts, repairs and maintenance and/or property improvements will be affected. In general, the new regulations are favorable to the taxpayer via accelerated tax deductions.
The new regulations mandate a new approach to defining commonly used terms, such as supplies, repairs, maintenance, improvements, and units of property and whether they should be capitalized or expensed. The IRS offered some opportunities by allowing for routine maintenance safe harbor, which allows taxpayers to expense certain costs that are routine and recurring, de minimis safe harbor for supplies and acquisition costs, and a safe harbor election for small taxpayers to deduct certain improvement costs.
Your Berman Hopkins Tax Team