What You Need to Know About Routine Maintenance Safe Harbors Under  the New Tangible Asset Regulations (Part 5)

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.

Highlights

  • Capitalization vs repairSafe harbor allows taxpayers to identify – and continue expensing – routine maintenance that is expected to occur more than once over the ADS class life of the property
  • Safe harbor applies to:
    • Rebuilding property to like-new condition after the end of its class life
    • Replacing a substantial structural part or major component
    • Safe harbor does not apply to buildings (structural components or building systems), betterments,  certain restorations, and rotables using the optional method
    • Opportunity to identify and expense amounts capitalized in prior years
    • Automatic accounting method change is provided to adopt safe harbor

Our CapX Program

Freed Maxick's integrated team of tax and accounting method specialists, and cost segregation engineers can help you comply with these complicated regulations. We’re pleased to bring you FreedMaxick's CapX (Capitalization or Expense) Consulting Service -- a comprehensive program designed to quickly and efficiently bring you into compliance and optimal tax savings. Click here for more information or call Don Warrant at 716-847-2651.

Click here for all the articles in this blog series.