All taxpayers that have capital expenditures or incur repair and maintenance costs are impacted by the tangible property regulations that were finalized in September of 2013. These regulations provide guidance regarding the capitalization of the costs to acquire, maintain or improve tangible property and are effective for tax years beginning on or after January 1, 2014.
Compliance with these regulations may require taxable income impact calculations and will require the filing of one or more Application for Change in Accounting Method forms (Form 3115). It should be noted that the regulations provide numerous accelerated tax deduction opportunities for taxpayers.
Taxpayers may accelerate deductions for previously capitalized expenditures that under the new rules are able to be expensed. Expenditures should be expensed if the “improvement standards” (betterment, adaptation or restoration) are not met. Depreciation records should be reviewed to identify and claim these accelerated deduction opportunities on 2014 tax returns.
Areas where accelerated deduction opportunities exist include:
- Building refresh (cosmetic only changes)
- Replacing building windows, flooring and roof membranes
- Building system component replacements
- Tenant improvements
- Parking lot resealing
- Routine maintenance
- Partial asset dispositions
An additional opportunity for taxpayers is the de minimis safe harbor election on 2014 tax returns. This election allows taxpayers to expense expenditures that otherwise would be required to be capitalized if certain criteria to make the election are met.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.
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