2014 Final Repair Regulations and Tangible Property Regulations.
Summary of the Repair Regulations and Tangible Property Regulations by Gian Pazzia ASCSP, Shareholder of KBKG, President of ASCSP.
Summary of major changes
- General Asset Account Election issue addressed – do not have to elect GAA treatment to forgo loss upon retirement of structural component.
- De minimis Rule Change – eliminated the ceiling! Amounts less than $5,000 per item can be expensed for tax as long as they are expensed on financial statements. Taxpayers without Applicable Financial Statements can use De minimis rule with a limit of $500 per item.
- Routine Maintenance Safe Harbor rule – extend safe harbor to buildings but require 10 years as the period which a taxpayer must reasonably expect to perform the relevant activities more than once.
- Relief for Small Businesses – small taxpayers (<$10M) can elect not to apply improvement rules to eligible building (<$1M). If total amount paid < $10,000 or 2 percent of unadjusted basis of the building.
- Changes to definitions of Betterments and Restorations.
- Dispositions – the Proposed Regulations for Dispositions change the rules for partial dispositions of assets. Require making timely elections.
Repair Regulations / Tangible Property Regulations Items of Note
- Many sections of the repair regulations must be applied retroactively to all prior years where it presents a material difference in tax liability. IRS has not provided clear guidance on how far back to go.
- Must File Form 3115 “Change of Accounting Method” for several sections of the tangible property regulations. (most taxpayers 4-6 CAMs)
- Cost Segregation Studies are more relevant
- For repair determination and for retirement purposes
- May require more detail than a standard cost segregation study
- Rules generally apply to tax years beginning on/after 1/1/2014 (but also apply to cost incurred in prior years).
Costs to repair or improve tangible property in prior years required to conform to the Final Repair Regulations.
- If you did a “repair regulations study” in a prior year, you may have to revisit those.
- Final & Temporary Repair Regulations. require Changes of Accounting Methods to be filed. Several sections require full 481(a) adjustments for prior years as mentioned above.
- Options for tax years beginning 1/1/2012 & 1/1/2013
- Continue with existing accounting methods
- Early adopt the 2011 Temp Repair Regulations.
- Early adopt the Final Repair Regulations.
- All taxpayers must conform to the Final Repair Regulations for tax years beginning 1/1/2014
- Sections below are implemented on “cut-off” basis and do NOT require 481(a) adjustments. Only apply to amounts paid on/after 1/1/2014
Effective Dates for “Cut-Off” Sections of the Repair Regulations / Tangible Property Regulations
- Sections below do NOT require 481(a) adjustments. Applied to amounts for tax years on/after 1/1/2014 with option to apply to tax years beginning on/after 1/1/2012.
- Materials and supplies (Reg. sec. 1.162-3)
- De minimis rule (“capitalization threshold“) (Sec. 1.263(a)-1(f))
- Costs for acquisition of real property (Sec. 1.263(a)-2(f)(2)(iii))
- Employee comp and overhead costs for acquisition of real/personal property (Reg. sec. 1.263(a)-2(f)(2)(iv))
- Inherently facilitative amounts for acquisition or production of real/personal property (Reg. sec. 1.263(a)-2(f)(3)(ii))
- Safe harbor for small taxpayers (Reg. sec. 1.263(a)- 3(h))
- Optional regulatory accounting method for amounts to repair, maintain, or improve tangible property (Reg. sec. 1.263(a)-3(m))
- Election to capitalize repair and maintenance costs (Reg. sec. 1.263(a)-3(n))
- Section 263A direct material costs (Reg. sec. 1.263A-1(e)(2)(i)(A))
- Section 263A indirect material costs (Reg. sec. 1.263A-1(e)(3)(ii)(E)).
- For early adopters, there is transition relief to make certain elections on 2012 & 2013 amended returns.
KBKG will identify your missed deductions and help you conform to the new Repair Regulations.
We offer a full service, turnkey solution with Big 4 in house professionals. Contact us to get started, call 877-525-4462 or email firstname.lastname@example.org. To see if you qualify for a Tangible Property Regulations study, fill out the form and tell us about your assets.