Understanding the Interplay of Section 263A Under the New Capitalization vs. Repair Regulations (Part 4)
Author: Don Warrant
In December of 2011, the IRS published comprehensive new regulations governing capitalization vs. deductible repair expenditures for tangible property. For many taxpayers this will mean making changes to accounting methods and systems, new tax compliance requirements, new tax planning opportunities, and on a positive note, the chance to expense items capitalized as improvements in prior tax years.
Taxpayers can implement method changes in 2012, 2013 or 2014 according to IRS Notice 2012-73. Therefore, taxpayers should incorporate the method changes provided by the new regulations in their tax planning for 2012, 2013 and 2014.
- 263A Regulations are referenced throughout the regulations
- Indirect costs, including repair and removal costs, may require capitalization under 263A
- 263A requires taxpayers to capitalize indirect costs that directly benefit or are incurred by reason of an improvement to property
- Taxpayers are not required to capitalize costs that do not directly benefit and are not incurred by reason of an improvement, even if incurred at same time
- Revenue Procedures 2012-19 and 2012-20 require use of a proper 263A method for the item to make a method change, or require a concurrent 263A method change for the item
- Non-automatic 263A method changes could affect the timing and method of complying with the new regulations
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