Guidance on General Asset Accounts and the New Capitalization vs. Repair Regulations (Part 8)

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

  • tangible asset regulationsTaxpayers can elect to group one or more assets into a general asset account (GAA) if certain requirements are met
  • Many Taxpayers will make GAA elections for buildings
  • A GAA election allows a Taxpayer to continue to depreciate the entire GAA even though specific assets may be disposed of.  However any proceeds must be included in income
  • Alternatively, a GAA election can be terminated for each asset disposed of. Therefore, the tax basis in the disposed asset is available to offset proceeds or recognize a loss.
  • The GAA election is made on an original, timely-filed tax return (including extensions)
  • Taxpayers can make late GAA elections for 2012 and 2013 only using the automatic method change procedure
  • Accounting records must be updated and properly maintained for each GAA election.

Our CapX Program

FreedMaxick's CapX (Capitalization or Expense) Consulting Service is 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.

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