Tangible Property Regulations: Texas
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 Texas 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 Texas 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 Texas.
Can You Qualify?
Taxpayers in Texas that acquire, renovate, or improve real estate in Texas are affected by the repair regulations change. Generally, anyone that has incurred significant costs for renovations to their existing Texas property in the last 15 years is an ideal candidate. The tangible property regulations states that original improvements on Texas 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 Texas.
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.