Tangible Property Regulations
The IRS issued final Tangible Property Regulations on Sept. 13, 2013, and the final regulations are effective for tax years beginning on or after Jan. 1, 2014. All taxpayers that acquire, produce, or improve tangible property need to be aware of these new regulations. In addition, the disposition of tangible property is also impacted by these final regulations.
It is important to address these regulations for your business.
A change in accounting method, Form 3115, may be required in certain siltations. Please contact your adviser to see if you need to change your accouting method.
When a portion of an asset was replaced in the past, such as replacing a roof of a building, you weren’t able to deduct the undepreciated cost of that portion of the building. Under final regulations, a new election is now available to get that writeoff in the year of replacement.
In January 2016, the safe harbor increased from $500 to $2,500 per item for taxpayers without AFS (and a written capitalization policy). For taxpayers with an AFS, the safe harbor is $5,000 per item.
Here are some helpful resources:
- When to expense and when to capitalize? (Flow Chart)
- Capitalization policy without applicable financial statement* PDF Word
- Capitalization policy with applicable financial statement* PDF Word
- Guidance on the treatment of tangible property under MACRs
- Frequently asked questions on regulations
- Sample company policy
* The definition of an applicable financial statement only includes:
– A financial statement required to be filed with the Securities and Exchange Commission (SEC) (e.g., Form 10-K)
– A certified audited financial statement that is accompanied by the report of an independent CPA and used for credit purposes, reporting to owners, or any other substantial non-tax purpose
– A financial statement required to be provided to the federal or state government or any federal or state agencies (other than the SEC or IRS)