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Tangible Property Regulations; New Filing Requirements for Businesses

MacRo is pleased to feature an article written by Steve Albert and Matthew Barlove of Glass Jacobson, a CPA wealth management firm.

This was originally posted on Glass Jacobson’s Wealth Wisdom blog. The complete text of the article is posted below.

taxesFebruary 19, 2015 – By Steve Albert and Matthew Barlove

The IRS and the US Treasury issued new Tangible Property Regulations (TPRs) that require both taxpayers and tax preparers to revisit existing accounting methods and policies to ensure compliance. These Tangible Property Regulations present new opportunities and risks that affet taxpayers in every industry who own depreciable assets and/or spend funds on repairs/maintenace, or on material/supplies.

Though the IRS has made these regulations optional on a retroactive basis for certain qualifying small taxpayers, each taxpayer must thoroughly review its books and recors to determine their applicability. If applicable, the numerous method changes and form filings required for the 2014 tax year will require extra time to be spent on tax preparation.

Many tax professionals view these regulations as a burden that must be addressed during an already busy time of year. Conversely, the team at Glass Jacobson views this as an opportunity to assist clients in optimizing tax savings strategies and avoiding potential tax exposure and fees.

Below is a summary of the new regulations and how they may impact your business.

1. Additional Tax Deductible Write-Offs for the 2014 Tax Year on Prior Assets

***Potential Windfall Tax Savings Opportunity***

Due to a change in tax law, the IRS provides taxpayers an opportunity to review existing capitalized fixed assets and write-off select assets in the 2014 tax year. Under old tax law, these capitalized assets were being written off over the tax lives of those assets. Under new tax law, we have the opportunity to revisit the classification of older assets. Assets not rising to a certain capitalization standard within the new regulations (Betterment, Adaptation, Restoration) may be eligible for an immediate tax deduction. Those assets that do not qualify for an immediate tax deduction may still qualify for a quicker write-off under the new law. Taxpayers may also be eligible to write-off select assets that are deemed to be “prior dispositions” under IRS guidance.

Example: ABC, Inc. incurred a $15,000 expenditure related to a roof repair in 2012. Under old tax law, ABC, Inc. capitalized this expenditure and began writing this asset off over its tax life. At the end of 2013, ABC, Inc. had a $14,500 remaining tax basis in the capitalized roof repair. Working through the new Tangible Property Regulations, ABC, Inc. determined that the 2012 roof repair does not meet the IRS’ capitalization standard (Betterment, Adaptation, and Restoration) and would be eligible to write-off the remaining $14,500 on its 2014 tax return in the form of a “catch-up” deduction. This write-off is beneficial as it puts money in your pocket immediately.

Opportunity for Tax Deductible Write-Offs on Current and Future Expenditures

The IRS has introduced certain safe-harbor protection and accounting method changes for qualifying taxpayers which allow for a current deduction of select 2014 expenditures. Many of these safe harbors are optional and are elected by the taxpayer on an annual basis. Without the protection of these IRS safe harbor elections, taxpayers may otherwise be required to capitalize expenditures and defer the tax deductible benefit into future tax years. The most common are as follows:

a. De Minimis Safe Harbor to Acquire Property – Generally provides taxpayers with the ability to take a tax deduction on expenditures of $500 or less, regardless of the type of expenditure. ($5,000 or less for taxpayers with an audited financial statement).
b. Small Taxpayer Safe Harbor – Allows for a simplified method of categorizing repair and maintenance expenditures for taxpayers meeting certain criteria.
c. Routine Maintenance Safe Harbor – Allows for a current year tax deduction on qualifying expenditures that are reasonably expected to be incurred multiple times within a specified period.
d. Repairs & Maintenance – Under new tax law, taxpayers may file for a change in accounting method to treat qualifying repair and maintenance expenditures as deductible in the current tax year. Under old law, these expenditures may have been required to be capitalized and written off over the tax life of the underlying assets.

2. Planning Considerations and Timing of Tax Deductions

Though compliance with the Tangible Property Regulations is mandatory beginning in the 2014 tax year, the team at Glass Jacobson is well versed in these regulations and has identified several planning opportunities to allow our clients to remain in compliance while still optimizing their tax strategy. Our in depth understanding of each provision and the interplay between provisions helps to position Glass Jacobson as a key advisor to our clients with regard to interpreting and applying the more than 2,000 pages of Tangible Property Regulations and IRS revenue procedures on this topic.

Contact Glass Jacobson for more information on this topic or for any assistance required throughout the 2014 Tax Season.

Please feel free to contact MacRo Commercial Real Estate with any questions and don’t forget to subscribe to the MacRo report blog!

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