Confused about what’s expected of your company under IRS’ new repair regs? Join the club, says a new survey by KPMG.
Your peers can’t tell either: 62% of tax execs admit they’re unsure about whether to view the new rules, which overhaul the rules on the capitalization of costs incurred to acquire, maintain or improve tangible property, as favorable or unfavorable. Nearly half (42%) are sure it means more work, though.
There’s no time for confusion – the rules are effective Tax Year 2012.
And any purchase your company makes for your facility will be impacted, from the roof you’re replacing this spring to the maintenance of your photocopier.
Here’s a rundown of the two biggest changes under the new regs:
Change #1: Improvement standards
First, the new regs change how your company will apply improvement standards to any building property. No longer will you be able to apply them to the whole building.
Instead, the regs require your company to apply the standards to the individual systems being improved, repaired, etc. So make sure your staffers are staying on top of any changes to your HVAC systems, plumbing system, electrical system, security system, elevators, etc., and you’ll likely do more capitalization.
Change #2: De minimis expensing
The little stuff counts, too. And they change under the new repair regs. The new rules also significantly change the de minimis expensing rule. Now all categories of materials and supplies can be deducted in the year your company buys them, rather than the year they’re used, which makes for a short-term cash flow boost.
To take advantage, though, your company will have to tabulate it as an expense for reporting purposes and you must have a written policy to account for purchases this way.
There is another condition, thanks to the latest version of the rules. From now on, the amounts your company pays but doesn’t capitalize under the de minimis rule for the tax year must be less than or equal to:
- 0.1% of your gross receipts for the year, or
- 2% of your total depreciation and amortization expense for the tax year on your applicable financial statement.
Info: To download the entire 255-page proposed reg, click.