IRS Issues Final Regulations on Tangible Property Expenses

October 2, 2013

The regulations (IRS T.D. 9636) provide guidance on how to comply with Sections 162 and 263 of the Internal Revenue Code and result in some significant changes to prior rules. These Code sections require amounts paid to acquire, produce or improve tangible property to be capitalized but allow amounts for incidental repairs and maintenance of property to be deducted — potentially saving you more tax in the current year.

The final regulations explain how to distinguish between capital expenditures and deductible business expenses. They replace temporary regulations issued in 2011, but they retain many of the temporary regulations’ provisions. In addition, they modify several sections and create a number of new safe harbors.

The final regulations generally will apply to tax years beginning on or after Jan. 1, 2014. They affect all businesses that own or lease tangible property, including buildings, machinery, vehicles, furniture and equipment. If you have expenditures related to tangible property, the final regulations apply to you. Compliance may require changes to your current capitalization procedures and the filing of Form 3115, “Application for Change in Accounting Method.”

If you have questions regarding these final regulations and how to best proceed, contact us at JPS as we are always happy to help.