Capital Improvement Regulations- What does it mean for you?

By Freed Maxick on September, 3 2013
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Freed Maxick

Freed Maxick provides accounting, auditing, tax and consulting services and serves public and private companies, not-for-profits and municipalities to enhance profitability, save taxes, improve accountability and preserve wealth.

By Jennifer Birkemeier, CPA

In December of 2011, temporary regulations (T.D. 9564) were published. These regulations will affect taxpayers that acquire, produce, or improve tangible property. They also mean potential significant tax savings for taxpayers.

One purpose is to clarify  Sec. 263(a) of the regulations for capital expenditures, which make available tax benefits to commercial property owners through favorable rulings on building improvements and repairs. The building structure and its building systems might include: heating ventilations, electrical systems, all escalators, plumbing systems, HVAC systems, fire protection and alarm systems.

There is a process in finding these benefits, and it starts with a Cost Segregation study. The Cost Segregation study allows the commercial property owner to take advantage of the new capital improvement guidelines. This is done through qualitative tests; performed based on the cost of the unit of property and the current expenditures, and is either capitalized or expensed. While most owners want the expense, the unit of property must be defined in order to allow for this option. The new regulations will allow for expensing the repairs and maintenance to the unit once it’s defined.

Cost Segregation Studies

Cost Segregation studies help to define the units of property for the owner. In addition to this, the study can correctly identify “disposed of building components”.

Why is this an important aspect of the study? The Tangible Property regulations now allow for disposed of building components to be deducted up to their remaining depreciable basis. If a cost segregation study is not conducted than the costs of the disposed building components can’t be correctly identified, resulting in no deduction for the commercial property owner.

The Cost Segregation Partners of Freed Maxick CPAs is one of the nation's leading providers of Cost Segregation and consulting services to real estate owners. Our philosophy is to offer clients an experienced team of professionals who take a 360 degree view of a taxpayer’s assets. This helps our team identify credits and incentives that the taxpayer may benefit from. To learn more about our unique approach click here.


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