Repair Regulations Still Provide Opportunities for Taxpayers
Author: Scott Humphrey
Some taxpayers already have implemented the tangible property regulations (repair regulations) through changes in accounting methods or the 2015 small taxpayer relief provisions. In many instances, the regulations are more favorable than present accounting methods taxpayers follow and may provide current and future tax benefits.
IRS Releases FAQs
The IRS released frequently asked questions to assist with implementing repair regulations. The FAQs provide guidance on how to apply the de minimis safe harbor election, general improvement rules and the newly released small taxpayer relief provisions. The FAQs don’t offer new guidance, but do help clarify the rules in select situations.
De Minimis Safe Harbor Comments
The IRS requested comments—included in the small taxpayer relief provisions—on the appropriateness of raising the $500 per item de minimis safe harbor amount for taxpayers that don’t have an applicable financial statement. The IRS received more than 150 comment letters from taxpayer representatives, including BKD, and issued guidance that provides taxpayers without audited financial statements a safe harbor for expensing tangible property costing $2,500 or less per invoice (or per item as substantiated by the invoice). This change is effective for tax years beginning on or after January 1, 2016. For tax years beginning after December 31, 2011, the IRS won’t raise or pursue issues related to assets that fall within the $2,500 safe harbor amount if the taxpayer otherwise satisfies the requirements for the safe harbor election.
Planning Opportunities Still Exist
Taxpayers implementing the repair regulations still have time to take advantage of the favorable betterment, adaptation and restoration standards, partial dispositions and safe harbor elections, i.e., the de minimis safe harbor and the safe harbor for building improvements of small taxpayers. A thorough analysis may identify instances where repairs were capitalized that should be expensed or find situations where they’re capitalizing duplicate assets, e.g., multiple roofs, heating, ventilation and air conditioning or tenant improvements.
While the repair regulations were initially viewed as a detriment to most taxpayers, many businesses have received tax benefits from implementing the new rules.