What are the Final Repair Regulations?

The IRS issued comprehensive Repair Regulations regarding the deduction and capitalization of expenditures related to tangible property. The regulations are commonly known as the Repair Regulations or the Tangible Property Regulations. The regs are applicable to businesses in all industries that acquire, produce, replace or improve tangible property. Application of the new Repair Regulations requires an in-depth understanding of various tax cases and circumstances that must be met.

KBKG is ready to identify and claim your missed deductions and help you conform to the new Repair Regulations.
Our experts have been educating tax professionals with seminars and webinar, and helping businesses retroactively claim any missed deductions.

Who Can Benefit From a Repair Regulations Study?

The Repair Regulations mostly affect real property and can provide significant benefits even if a cost segregation study has already been performed. IRS procedures allow you to apply these rules retroactively and claim any missed deductions using Form 3115. Correcting these errors is considered an Automatic Change of Accounting Method and does not require amending any returns.

Generally, anyone that has incurred significant costs for renovations to their existing property in the last 15 years is an ideal candidate. The original improvements should be placed in service for at least one year before renovations occur.

KBKG recommends a formal study if at least $500,000 or more is spent on renovations.

Partial Disposition Calculator

The KBKG Partial Disposition Calculator is designed to make calculations as simple as possible while minimizing unnecessary work. By providing basic data, the calculator provides a PPI adjusted value while considering the condition of the respective component at the time it was acquired (accomplished by considering the component’s normal life, quality, and age).

Significant Rule Changes to Repair Regulations

Below are a few significant rules changes of note regarding Repair Regulations

Whether Building Expenditures are Capital Improvements or Repair Expenses

The IRS outlines numerous subjective factors that must be considered when deciding if the building expenditure is an improvement or a repair expense. KBKG engineers will help you determine when it's appropriate to expense things such as windows, roofs, HVAC, plumbing and electrical based on your unique situation.

Write-off Structural Components of Buildings When Retired or Demolished.

Structural components of a building include items with a long tax life (generally 39, 27.5 or 15 years) such as lighting, roofs, HVAC systems, interior and exterior walls, etc. The new regulations allow you to assign a value to those items and write them off when replaced.

Plan of Rehabilitation Doctrine is Now Obsolete

Under the old rules, you had to capitalize any routine repair work that was performed at the same time as other major improvements. If you did not expense repair work done in the past under the old regulations, you are now able to claim those missed deductions without amending tax returns.

Repair vs. Capitalization Review Insights

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