Tangible Business Property Alert

by Steven Sodini 13. December 2013 10:29
Action required by 12/31/13 related to Tangible Business Property 


On September 13, 2013, the Internal Revenue Service (IRS) and Treasury Department released Internal Revenue Code 263(a), final tangible property regulations that affect the treatment of materials and supplies, capitalization of amounts paid to acquire or produce tangible property and the capitalization and deduction of expenditures relating to repair or improvement of tangible property. The IRS also released proposed disposition regulations.  The legislation included the following new provisions:
•    An election to capitalize certain materials and supplies; 
•    Separate safe harbors for taxpayers with an audited financial statement (AFS) and those without an AFS; 
•    A new rule that addresses the treatment of removal costs related to a disposition; 
•    A safe harbor for “qualifying small taxpayers” (those businesses with gross receipts of $10 million or less) for improvements to “eligible building property”;
•    A safe harbor for routine maintenance for buildings; and,
•    An election to capitalize repair and maintenance costs.
 
Companies are permitted to deduct amounts for repairs, maintenance, and improvements on owned or leased buildings with unadjusted basis under $1 million as long as the Companies’ three-year average gross receipts do not exceed $10 million and the amount paid for such repairs, maintenance, and improvements do not exceed the lesser of the following:
•    2% of the unadjusted basis of the building; or,
•    $10,000.

Generally, the final regulations apply to tax years beginning on or after January 1, 2014, but you may choose to apply them to tax years beginning on or after January 1, 2012. You also have the option to use the 2011 temporary regulations for tax years beginning on or after January 1, 2012 and before January 1, 2014. 
 
Because the final regulations go into effect in 2014, you must revise your written accounting procedures to comply with the expensing limits by the end of 2013 if you want to use the de minimis safe harbor, and in many instances, you must also change your method of accounting.

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