Sections 162 and 263 of the Internal Revenue Code 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 regulations (IRS T.D. 9636) provide guidance on how to comply with Sections 162 & 263 and explain how to distinguish between capital expenditures & deductible business expenses. These final regulations replace temporary regulations issued in 2011, but retain many of the temporary provisions. In addition, they modify several sections & create a number of new safe harbors.
The final regulations generally will apply to tax years beginning on or after Jan. 1, 2014 & 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 & the filing of Form 3115, “Application for Change in Accounting Method.” If you have questions regarding the final regulations and how to best proceed, Ellin & Tucker’s tax professionals will be happy to help.
Here is a link to the final regulations: