Implementing Repair Regulations Planning: The Time is Now
Last year at this time, we were all busy planning for the IRS repair regulations. Most of the planning and work included “going back in time” and adjusting items on our tax returns due to the new repair regulations. Other planning related to making sure capitalization policies were in place, elections were considered, forms were filed, and decisions were documented.
When the IRS Repair Regulations were released, they were made effective with tax years beginning on or after 1/1/14. That means this was not only a 2014 issue –the regulations are here to stay. Therefore, the implementation of the regulations should be happening now. Every time you make a large purchase, there are lots of decisions to be made. For example, is it a repair or capital expenditure? Does it qualify under the de minimis safe harbor? Is it a partial asset disposition? While last year was mostly spent trying to figure it all out, this year needs to be spent making sure all that planning is put into practice.
With yearend approaching, this is a great time to make sure you are adhering to the repair regulations and document thought processes. Below are a few actions to take to keep up with repair regulations going forward:
- Document, document, document – documentation is key with the new repair regulations. Although the IRS has provided examples for the final repair regulations, most of the decisions on whether an expenditure should be expensed or capitalized are subjective and require documentation to justify the thought process. Additionally, making sure a capitalization policy in place is key to being able to take advantage of the de minimis safe harbor election.
- The IRS realizes this is complicated too – the IRS continued to release more revenue procedures and guidance as 2015 went on as taxpayers and practitioners struggled with exactly how to handle the regulations. Recently, the IRS released a Tangible Property Regulations FAQ page on the topic which was helpful and well received.
- Don’t wait until tax time to deal with this – the last thing you want to do is procrastinate learning and implementing the repair regulations. For one, you lose the ability to take advantage of certain elections and method changes if they were not implemented at the start of the year. Additionally, trying to remember what you did 10 months ago is very difficult and will ultimately take less time if you document and make decisions at time the purchase occurred.
- The repair regulations can be taxpayer friendly – if taxpayers understand the regulations, they may be able to actually save tax dollars and create more deductions through avenues such as the partial asset disposition election and the de minimis safe harbor election.
- The Section 179 limits have been lowered starting in 2015. Understand how the de minimis annual safe harbor election can be a beneficial work around if the IRS does not increase the Section 179 limits.
Contact an Anders advisor to discuss further how the repair regulations could affect you.