Tangible Property Regulations: Illinois
The IRS issued comprehensive regulations regarding the deduction and capitalization of expenditures related to tangible property, i.e. the "Repair Regulations" or "Tangible Property Regulations." The IRS repair regulations are applicable to businesses in Illinois with industries that acquire, produce, replace, or improve tangible property. Since the new repair regulations mostly affect real property, they can provide significant benefits even if a cost segregation study has already been performed. Application of the tangible property regulations requires an in-depth understanding of various Illinois tax cases and "circumstances." The new repair regulations allow people 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 in Illinois.
Can You Qualify?
Taxpayers in Illinois that acquire, renovate, or improve real estate in Illinois are affected by the repair regulations change. Generally, anyone that has incurred significant costs for renovations to their existing Illinois property in the last 15 years is an ideal candidate. The tangible property regulations states that original improvements on Illinois buildings 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 building renovations in Illinois.
Green Inc. capitalized all $4M of "renovation" costs to their building four years ago. KBKG engineers found $300,000 was used to replace certain windows, asphalt patchwork, painting, roof tiles, some plumbing fixtures, and one HVAC unit. All these costs are repair expenses.
Results: $266,985 of additional deductions on current year return.