Tangible asset
repair regulations

Are you required to
take mandatory action?

These mandatory regulations may require action from you

Final IRS regulations issued September 13, 2013, impact any taxpayer who incurs costs to acquire, maintain or improve tangible property. The regulations provide direction on whether and when the costs incurred must be capitalized versus treated as an expense.

See how our tangible asset repair regulations service could help your organization.
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Tangible asset repair regulations

Consider who benefits

Any taxpayer, regardless of industry, may benefit from the new rules, including banking, retail & hospitality, manufacturing, office buildings, pharmaceutical, warehouse & distribution facilities, utilities and many others

Consider the benefits

Current year cash flow savings from identification of expenditures made during the current year that qualify for expense treatment

Implementation of capitalization policies and procedures to maximize benefits utilizing safe harbor rules

Identification and adoption of accounting methods that meet requirements of new regulations and maximize current and future deductions of repair and maintenance expenditures

Minimization of non-compliance risk

How AGH's Tangible asset repair regulations service can help your organization

The tangible property regulations are mandatory, not elective. The regulations were generally effective for tax years beginning on or after January 1, 2014. The regulations no longer allow taxpayers to look back into prior years and "catch-up" any missed opportunities. Thus, consideration must be given each tax year on whether or not any benefits exist and, if so, any benefits must be captured on current year returns.

The IRS previously issued a “stand-down” for audits on repairs, maintenance and related dispositions, but this grace period has ended. Again, taxpayers no longer have the option to defer compliance. Audits in this area will likely be an area of high activity. Starting in 2018, a particular area of interest for the IRS is on how the gain or loss is calculated on disposition of assets.

Carefully conducted cost segregation studies should also be considered and can be combined with the adoption of these IRS regulations to increase any positive impact and to lessen any potential negative impact. AGH’s cost segregation team of engineers and tax professionals is available to assist you in this implementation.

The final regulations are complex and confusing, and each taxpayer’s facts and circumstances are different. AGH’s team of professionals is proficient at evaluating the final regulations and applying them to each individual taxpayer’s situation to achieve significant increases in cash flow.

Areas of benefit

Four categories of expenditures have been specifically identified and defined by the final regulations, which provide an opportunity for expense treatment. Determination of whether or not compliance has been met is the key. In order to comply, expenditures may satisfy any one of the four below categories:

  1. De minimis safe harbor - $5,000 (AFS) or $2,500 (Non-AFS) limitation (as applicable)
  2. Routine maintenance safe harbor
  3. Materials and supplies
  4. Partial dispositions

In addition to the above categories, a second major area of opportunity under the final regulations exists for taxpayers who incur costs to remodel or repair assets. Those taxpayers must apply guidance provided related to areas defined in the final regulations as betterments, adaptations or restorations. Costs for the following types of activities often may be able to take advantage of the new regulations and receive expense treatment:

Remodeling Costs
Roof repairs Replacement of doors & windows
Parking lot repairs Replacement of ceilings
HVAC repair or replacement Regular maintenance
Refresh store appearance Removal of walls

See if you are eligible to take advantage of the regulations. Click to get started.

Bruce Stubbs, JD, LLM

Vice President
AGH Specialized Tax Solutions, LLC

Bruce Stubbs has more than 20 years of legal and tax consulting experience. His past 18 years have been devoted to research & development (R&D) tax credit services, cost segregation, and fixed asset tax issues, including the repair versus capitalization issues — also known as the repair regulations. He has more than 18 years of experience in public accounting providing tax consulting services to clients across all industries, including retail, hospitality and health care entities ranging from assisted living to full-service hospitals. Bruce’s practice also covers manufacturing applications including aircraft and aircraft components, plastics, electronics, custom job shops, industrial and commercial, and computer software development.

Bruce’s undergraduate degree is in accounting. He also earned his juris doctorate (JD) from Washburn University School of Law and his master of laws in taxation (LLM) from the University of Denver School of Law. Bruce is a frequent speaker for CPA and business groups about specialized tax topics such as research and development tax credits, cost segregation and the expensing versus capitalization regulations.