In September of 2013, the IRS issued regulations, required to be employed on tax year 2014 returns, that created guidelines for treatment of tangible property expenditures, whether tangible personal or real property.  These new tangible property regulations (TPRs) provide guidance on the capitalization and depreciation of capital expenditures, the treatment of materials and supplies, and the opportunity to write off all or a portion of an asset when disposed of.  They present new risks and opportunities that affect taxpayers in every industry that owns depreciable capital assets, spends funds on repairs and maintenance, and/or material and supplies. Below is a summary of the new regulations and how they will impact your business. In addition, there are useful flowcharts here, which will further guide you in your understanding of the new regulations.

Required Tax Filings
The good news of the TPRs is that taxpayers who have significant fixed assets with remaining depreciation or real property will typically have large current and future tax deductions. In order to obtain these tax deductions, a significant amount of “one time” work and related IRS tax filings need to occur, and occur by tax year 2014. This work relates to accounting method change forms. On the other hand, taxpayers who have been able to write their asset acquisitions off under bonus or Section 179 deductions will see minimal tax deductions but are still subject to the “one time” new tax filing requirements for 2014.

It is unfortunate that the IRS has required the majority of the TPRs to be implemented: (a) retroactively, and (b) via the filings of numerous additional required special tax forms for tax year 2014.  Retroactive application of the TPRs requires taxpayers to revisit every asset on its depreciation schedule to see if it should have been capitalized under the new capitalization rules or criteria (see below). If a prior asset/expenditure does not qualify as an asset under the new principals, it must be written off by 2014, or the opportunity to write off that item by tax year 2014 will be lost. The scary part of the TPRs is the threat of the IRS to disallow any future depreciation for prior items that do not pass the new capitalization criteria. Example, ABC, Inc. capitalized a $40,000 roof expenditure ten years ago. After applying the new criteria, it is determined that the remaining tax depreciation of $30,000 should be written off in 2014. If ABC does not properly complete the “one time” tax filings in their 2014 return, ABC will permanently loose $30,000 as a tax deduction. It is not allowed to continue to take annual depreciation for this item. Even if ABC did not have a tax deduction to take for tax 2014, ABC still has to file those numerous “one time” tax forms. Additionally, the IRS requires that the accounting method change forms not all be filed together. This will require several different sets of these forms to be filed.

The word “required” used above is very important to us as your tax return preparers. As CPAs and as your tax preparer, we are required to follow the rules and restrictions of our state and federal licensing parameters. Those parameters subject us to very large preparer’s penalties and sanctions, should we not follow them. One of those rules and regulations prohibits us from preparing and/or signing your 2014 return unless that return includes the new TPR implementation and form submissions. 

Capital expenditures
Taxpayers and their accountants have always faced the challenge of differentiating between what are capital improvements or repair and maintenance expenses as they sought the balance between accurately reflecting business profits verses maximizing tax deductions.  The new TPRs dictate that expenditures must be written off as repairs if they are not required to be capitalized. That is, repairs and maintenance are the opposite of what is required to be capitalized. Consequently, an understanding of the capitalization rules is imperative.  Rule: a taxpayer must capitalize any amounts that are paid to improve a unit of property or assets purchased. One makes an improvement to a unit of property if it is deemed to be betterment, a restoration, or adaption to a new or different use.  The employment of this guidance is heavily fact specific. While there are no bright line tests, there are now known specific criteria that need to be applied to the expenditures. The new criteria also require a thorough review of the past and future expenditures on improvements. That review will determine if prior capitalized expenditures should now be written off and will determine whether future ones will be capitalized. 

Unit of Property
The foundation of the capitalization rules is in the comparison of the expenditure to the unit of property. A unit of property consists of a group of functionally interdependent components.  In other words, if placing one component in service is dependent on placing another component in service, then they are functionally interdependent and considered one unit of property.   For example, a truck and its components (engine, tires, etc.) are one unit of property because each of those components needs to be placed in service at the same time in order for the truck to function. The regulations have special rules for buildings.  In general, a building and its structural components are one unit of property.  Examples of the structural components would be roofs, walls, floors, ceilings and other items that relate to the operation of a building.  There are also certain “building systems” that the regulations have defined as separate units of property.  These building systems include HVAC system, plumbing, electrical, escalators, elevators, fire protection, alarm/security and gas distribution. Even though a building is one unit of property, the capitalization criteria must be applied at the building structure or system level, and then even smaller comparisons for any item that performs a material and discrete function.

New Capitalization Criteria
Once a unit of property is defined, a taxpayer then needs to determine if the amounts paid result in a betterment, restoration or adaption to new/different use, as follows: 

Betterment:  Funds spent to correct a material defect/condition that existed prior to the acquisition of a unit of property; result in a material addition to the unit of property (i.e. enlargement, expansion or extension); and/or result in a material increase in capacity, productivity, efficiency, strength, quality or output of the unit of property.

Restoration:  Funds spent to return the unit of property to its ordinarily efficient operating condition if the property was in disrepair and no longer functional; replacement of a component of a unit of property where a gain/loss is recognized on the component; rebuilding the unit of property to a like-new condition after the end of its class life; or the replacement of part(s) that comprise a major component, large physical portion, or substantial structural part of the unit of property.

New/Different Use:  Funds spent to adapt a unit of property to a new or different use if the adaption is not consistent with the taxpayer’s original intended use of the unit of property when acquired.

Example: Able Contractors LLC purchased a bulldozer tractor in 2008.  In 2014, it paid $20,000 to have the engine and transmission rebuilt and everything repainted.  Under the new regulations, this cost would fall under the restoration category discussed above and would be required to be capitalized.  The applicable class life for a contractor is 6 years and in this example the item was rebuilt to a like-new condition after the end of its class life.  Let’s assume the same facts but the bulldozer was purchased in 2010.  As the class life of the tractor (6 years) does not end until 2015, the expenditures could be deducted.

Routine Maintenance Safe Harbor (RMSH)
The IRS offered some opportunities in the regulations by acknowledging that taxpayers do incur expenditures that assist in keeping a unit of property in its efficient operating condition.  As a result, the IRS created the RMSH rule that allows taxpayers to expense certain costs that are routine and reoccur at specific times during the use of unit of property. For personal property, an activity is reoccurring if you expect to do it more than once during the applicable class life of the unit of property.  The RMSH has special rules for buildings and their structural components. In the case of a building and/or its components. An expenditure can be treated as a repair & maintenance if one reasonably expect to perform it more than once over a 10 year period of time.

De Minimis Safe Harbor (DMSH) to acquire property
When a taxpayer purchases a unit of property, generally capitalization is required; however, the IRS provided some relief under the TPRs by creating a DMSH exception.  This exception allows taxpayers to immediately deduct amounts they pay to acquire or improve property, if the taxpayer complies with all of the DMSH rules.  The DMSH rules can be applied by all taxpayers if the rules are met. First, one must have a capitalization policy in place before the tax year starts.  This policy must specify that an expenditures under a certain dollar amount (i.e. like $1,000 and under).  Additionally, the taxpayer must have an invoice, and deduct the expenditure on its books. Under the regulations, taxpayers who have an applicable financial statement (AFS) are granted safe harbor to be able deduct up to $5,000 of the cost of an item of property (per invoice) or expenditure. For those who do not have an AFS, the $5,000 safe harbor is reduced to $500 per item.   Although the regulations state the $5,000/$500 as safe harbor limits, the capitalization policy should be set to an appropriate level for your business.  During an IRS audit, the taxpayer has the burden of proving to the IRS that the amount paid in excess of the safe harbor was reasonable. The DMSH is a safe harbor and not a restricted ceiling limitation. Example: XYZ, Inc. does not have an AFS, has a written policy in place before tax year begins that states they will expense property that costs $500 or less.  XYZ  purchases 25 items that cost $400 each on a total invoice of $10,000.  Since XYZ has a written policy in place and each item (unit of property) is $500 or less, XYZ must expense the full $10,000 paid if it writes these items off on its books.

Disposals
As another positive aspect of the TPRS, it also allows taxpayers the opportunity to partially dispose of duplicate portions of property, including buildings and their structural components.  Historically, for example, if one replaced a roof on a building and capitalized the replacement costs the taxpayer was not allowed to dispose of the prior roof.  Under the TPRs, a taxpayer can elect to dispose of the prior roof.  These partial asset dispositions provide an opportunity to write off duplicable assets for tax years prior to 2014 and are only available through the filing of the 2014 tax returns.

Materials and Supplies 
Materials and supplies (M & S) are defined as tangible property, excluding inventory, which is used or consumed in operations and is: either (a) A component acquired to maintain, repair or improve a unit of tangible property, (b) bulk, such as fuel, water, lubricants and similar items that are reasonable expected to be used in 12 months or less, (c) temporary or emergency spare parts, (d) units of property whose useful life is 12 months or less, or (e) a unit of property with a cost less than $200. Once an item is determined to be M & S, the regulations require a taxpayer to classify these M & S as either incidental or nonincidental.  Incidental materials and supplies can be deducted when they are purchased.  On the other hand, nonincidental materials and supplies are required to be deferred and deducted in the year they are used or consumed.  No later than tax year 2014, taxpayers are required to defer and keep a physical inventory or a record of consumption for its nonincidental M & S.  This rule is trumped, up to the taxpayer’s DMSH. 

Taxpayers must review and adapt its accounting by tax year 2014 to conform its treatment of M & S to the TPRs.  Example, Bob’s Wood Shop has temporary machine parts and bulk wood treatment on hand at tax year end 2014, that are above its DMSH. Bob’s has to defer, and not take as tax deduction in 2014, these items.

Conclusion
While the new regulations are complex, understanding how they impact your business is critical to maximizing tax deductions while maintaining tax compliance.  Past decisions regarding the M & S expenditures, as well as the capitalization or write off of R & M must be reviewed to determine what changes are necessary under the new regulations. These changes will require the filing of certain IRS tax forms no later than tax year 2014 while other changes are either new annual elections or choices.   Your Rodeheaver Group advisor has the resources to assist you in determining how these new regulations will affect your business.


Copyright© 2014, Eric P. Wallace and Boyer & Ritter LLC

 


Comments

03/20/2015 12:10am

This site is very nice to gaining grate information easily way.
Thank you for posting this article.

Reply
04/12/2016 8:24pm

The dream language is God's language. We can read it in all images, either they are in dreams, art works, movies, or they belong to our daily life.

Reply
11/30/2016 5:57am

Testo Vital Yvonne melee resident nutritionist at city retreat, Testo Vital Harrods. The strength to exchange takes place once.
http://www.healthsupreviews.com/testo-vital-review-scam-not/

Reply
03/26/2015 12:31am

Surprise Circle is fast growing eCommerce site, popular with its quality women apparel, clothing, lingerie, jewelry, free surprises gifts on every purchase

Reply
07/06/2015 2:55am

This net site is astounding and so is how the subject was acknowledged. I also generally similar into a assortment of the reviews way significantly too. Prepared for that next publish.

Reply
08/18/2015 3:17am

They all time share wonderful content which is based on business and its functions. it all about knowledge base information and learn some interesting updates.

Reply
09/08/2015 1:02am

Computer has made education very exciting for the students. The use of images such as graphics, PowerPoint presentations slides can be very helpful for the students. All these things create interests of the students alive in the class. They can not get bore with them

Reply
11/16/2015 10:56pm

Class member variables are called "properties". You may also see them referred to using other terms such as "attributes" or "fields", but for the purposes of this ...

Reply

Namecheap is a new Domain and hosting providing company, It Provide your Domain and Hosting Coupons, Namecheap Promo codes, deals, and latest offers at Webtechcoupons.

Reply
01/09/2016 8:32am

Thank you for sharing this post with us, I am working in Child Care Sales as a sales manager. Intellectual Property is an important asset for any business. Most businesses have some form of intellectual property, whether they realize it or not. Be it an invention, a logo, an industry article, a marketing plan or whatnot, it is property that should be protected and maintained to provide your business with the optimal benefits available.

Reply

Oh, I see. Thank you for this article.

Reply
02/23/2016 9:40am

The inspection can be completed by you or your tenant, and we’ll lock it down once it’s finished just in case someone tries to make edits down the road!

Reply
03/04/2016 3:46am

This blog post assists by supplying valuable information. I would suggest others to undergo the blog post and get your understanding boosted-up.

Reply
05/19/2016 4:26am

Superb post provide us and this blog site is excites even more people to reviewing that blog site.

Reply
05/19/2016 7:19am

I might suggest solely beneficial in addition to trusted facts, and so find it:

Reply
06/07/2016 2:45am

Took me time to read all the comments, but I really enjoyed the article. It proved to be Very helpful to me and I am sure to all the commenters here! It’s always nice when you can not only be informed, but also entertained!

Reply
07/05/2016 7:56am

Great! you put all constitutive content and informative points in your blog post is very useful. thanks for sharing..

Reply
07/08/2016 11:57pm

It's nice blog I have really enjoyed keeping up with you on this blog.This is very useful post for everyone. Thank you so much this post.

Reply
07/09/2016 2:39am

Thanks for the valuable feedback. I think that strategy is sound and can be easily replicable.Great posts. I love this article.

Reply
07/16/2016 3:04am

Packers and Movers in Hyderabad Charges @
http://www.moveby5th.in/packers-and-movers-hyderabad.html
Packers and Movers in Pune Charges @
http://www.moveby5th.in/packers-and-movers-pune.html
Packers and Movers in Bangalore Charges @
http://www.moveby5th.in/packers-and-movers-bangalore.html
Packers and Movers in Delhi Charges @
http://www.moveby5th.in/packers-and-movers-delhi.html
Packers and Movers in Gurgaon Charges @
http://www.moveby5th.in/packers-and-movers-gurgaon.html
Packers and Movers in Mumbai Charges @
http://www.moveby5th.in/packers-and-movers-mumbai.html

Reply
07/16/2016 3:04am

Packers and Movers Pune Charges #
http://www.movers5th.in/packers-and-movers-pune/
Packers and Movers Mumbai Charges #
http://www.movers5th.in/packers-and-movers-mumbai/
Packers and Movers Delhi Charges #
http://www.movers5th.in/packers-and-movers-delhi/

Reply

Packers and Movers Bangalore Charges #
http://www.movers5th.in/packers-and-movers-bangalore/
Packers and Movers Hyderabad Charges #
http://www.movers5th.in/packers-and-movers-hyderabad/
Packers and Movers Gurgaon Charges #
http://www.movers5th.in/packers-and-movers-gurgaon/

Reply
07/16/2016 3:06am

Packers and Movers Noida Charges @
http://www.movers5th.in/packers-and-movers-noida/
Packers and Movers Chennai Charges @
http://www.movers5th.in/packers-and-movers-chennai/
Packers and Movers Navi Mumbai Charges @
http://www.movers5th.in/packers-and-movers-navimumbai/
Packers and Movers Thane Charges @
http://www.movers5th.in/packers-and-movers-thane/
Packers and Movers Ghaziabad Charges @
http://www.movers5th.in/packers-and-movers-ghaziabad/
Packers and Movers Faridabad Charges @
http://www.movers5th.in/packers-and-movers-faridabad/

Reply
08/28/2016 3:29am

Numerous loaning organizations make accessible business land advances which are for the most part for money delivering and business related destinations. This advance is not something that does not require much time with little arrangement and your exertion, which you will love. If you would like to know about business, visit us at childcaresales.com.au

Reply

I am truly inspired by this online journal! Extremely clear clarification of issues is given and it is open to every living soul. I have perused your post, truly you have given this extraordinary informative data about it.

Reply
10/18/2016 5:39am

Hey! Would you mind if I share your blog with my twitter group? There’s a lot of folks that I think would really enjoy your content. Please let me know. Thank you!

Reply
10/26/2016 2:16am

As a commercial real estate agent, you should set yourself some specific goals and benchmarks to be achieved in a regular and ongoing way. When you have some clear targets, you can understand how the property market is trending and what changes you need to make to attract more market share. It is interesting to note that many agents approach their career initially with some focus, which then unfortunately tends to fall away as time passes.

Reply
12/15/2016 11:43am

The sales pitch and presentation process in commercial real estate agency is in most cases quite competitive. You only have a short time to build your case and sell your services as a relative and professional agent to take on the listing. Here are some tips to help agents with their presentations.

Reply
12/29/2016 9:04am

Great post !! I truly favour to reading your post. Thank you a lot for taking the time for you to share such a nice info.

Reply
02/08/2017 8:36pm

Alpha Monster Advanced Biceps and triceps sporting activities are the ones on the way to assist your palms get bigger and build the muscular tissues in your hands. http://t-rexmuscleadvice.com/alpha-monster-advanced/

Reply

People tired to find a relevant place where they can know real facts and myths about the topic mentioned by author of this blog. I want to help a lot of needy people through this blog to come up at my blog to know the real facts and myths regarding this topic.

Reply
02/24/2017 2:36am

I really like the dear information you offer in your articles. I'm able to bookmark your site and show the kids check out up here generally. Im fairly positive theyre likely to be informed a great deal of new stuff here than anyone else!

Reply
03/08/2017 12:53pm

This article discusses whether starting and developing a Property Management Company could be for you or not. There are some personalities that this business is suited for, and equally some that are not.

Reply
03/15/2017 9:54pm

Reply

Unprecedented! This is genuinely a preparation related post and I am unreasonably peppy, making it difficult to be the peruser of this. This gave all around awesome information about article forming and share various more things. Well done keep it up

Reply

Everyone share their experience here and this is really nice to read different kind of theories related to same topic. Everyone placing their different opinion and it shows diversity. Appreciate this platform.

Reply

I really appreciate the efforts made here behind writing such a wonderful blog. I can recognize this blog very well for all the efforts made by writers to deliver well and standard information.

Reply
04/17/2017 9:31pm

I am delighted to come to such a wonderful blog. I am really very impressed to read from top to bottom. I read every single line and understand the essence of every single word. I appreciate all efforts.

Reply
04/17/2017 9:53pm

I am grateful for this blog to distribute knowledge about this significant topic. Here I found different segments and now I am going to use these new instructions with new enthusiasm.

Reply
04/17/2017 9:54pm

Impressive and powerful suggestion by the author of this blog are really helpful to reduce our hack-tic life. My own views are matching with author and I have experienced such.

Reply
04/17/2017 9:54pm

Hello! It looks like the writer of this blog is really very professional because I never read such kind of writing before. The way of writing and the way of using right words on right place shows some expert skills

Reply
04/17/2017 9:56pm

The above mentioned matter is easy to not only understand but also explain. Even I can elaborate subject of this article now very easily because I it is easy to understand for me. Really a creative expert skill possessed by author.

Reply
04/18/2017 2:52am

Perfect example of speculation, empathy and expression. Here I learned a new way to speculate through author’s writing. It allowed me to feel a new way to speculate your thoughts and express them in an easy and clear way.

Reply
04/25/2017 9:45am

I really enjoyed this site. This is such a Great resource that you are providing and you give it away for free. It gives in depth information. Thanks for this valuable information.

Reply
04/26/2017 5:46am

Incredible points. Sound arguments. Keep up the great work.Thanks for sharing in detail. Your blog is an inspiration! Apart of really useful tips, it's just really!

Reply
05/01/2017 3:16am

Share great information about your blog , Blog really helpful for us . We read your blog , share most useful information in blog . Thanks for share your blog here .

Reply
05/01/2017 3:18am

I am grateful for this blog to distribute knowledge about this significant topic. Here I found different segments and now I am going to use these new instructions with new enthusiasm.

Reply
05/02/2017 4:59am

An author must have a vast knowledge of vocabulary. The dictionary of a writer must be full of new english vocabulary to make their work more attractive. Use of new words makes their work more valuable and graceful.

Reply
05/02/2017 5:00am

This blog suggested me a new point to focus on. I am going to adopt this new approach while going forward in my career and related work. Appreciated help of this blog

Reply
05/02/2017 9:25pm

I am glad that I saw this post. It is informative blog for us and we need this type of blog thanks for share this blog, Keep posting such instructional blogs and I am looking forward for your future posts.

Reply
05/11/2017 6:03am

check out the latest picsart tutorial download
learn picsart editing
picsart tutorial pdf
how to edit best photo in picsart
picsart editing download
picsart editing tutorial app download
picsart editing online
how to use picsart to change background

Reply
05/15/2017 8:59pm

This is actually good to read content of this blog. A is very general and huge knowledgeable platform has been known by this blog. I in reality appreciate this blog to have such kind of educational knowledge.

Reply

Sometime few educational blogs become very helpful while getting relevant and new information related to your targeted area. As I found this blog and appreciate the information delivered to my database.

Reply
05/24/2017 5:57am

This blog suggested me a new point to focus on. I am going to adopt this new approach while going forward in my career and related work. Appreciated help of this blog

Reply
05/24/2017 7:21am

Nice article, thanks for the information. It's very complete information. I will bookmark for next reference.

Reply
05/29/2017 4:37am

I came to this blog and it helped me to add few new points to my knowledge. Actually, I am trying to learn new thing wherever I find. Impressive written blog and valuable information shared here.

Reply

Share great information about your blog , Blog really helpful for us . We read your blog , share most useful information in blog . Thanks for share your blog here .

Reply
05/31/2017 3:56am

Sometime it becomes very hard to find a well written and well established bog which give you correct and useful information. However, I found this blog and got some relevant information which are really helpful for me.

Reply
05/31/2017 11:10pm

There might some different approaches according to place or knowledge. Your skills depends on how you got an opportunity and where you have trained. Personal or professional training might distinguish between each other.

Reply
06/01/2017 9:08pm

I would like to thank you for the efforts you have made in writing this article. I am hoping the same best work from you in the future as well. In fact your creative writing abilities has inspired me to start my own BlogEngine blog now. Really the blogging is spreading its wings rapidly. Your write up is a fine example of it.

Reply

My own perspectives are coordinating with creator and I have encountered such. Your blog is extremely instructive.

Reply
06/02/2017 11:19pm

I am one of the individuals who cherish your camera frameworks. I am presently searching for camera frameworks to be set up in my home so I can screen it notwithstanding when I'm grinding away.

Reply
06/08/2017 1:42am

Thanks a lot for writing this stuff it helped me to understand various things.......

Reply
06/12/2017 3:21am

This blog presented itself in a very easy and clear way. Owner of this blog found a very simple way to express its view but when you read this blog completely, you would get to know about how hard it could be to express such in a easy way.

Reply

Graceful written content on this blog is really useful for everyone same as I got to know. Difficult to locate relevant and useful informative blog as I found this one to get more knowledge but this is really a nice one.

Reply



Leave a Reply