Taxpayers should have all the necessary guidance from the IRS to fully implement the tangible property regulations for the 2014 tax year. Although the final regulations provide a significant amount of direction in determining whether an expenditure should be treated as a deductible or capitalizable cost, the regulations are over 200 pages long and can be cumbersome to navigate.
To aid taxpayers in applying the final regulations, RSM has put together the following flowcharts to help clarify common items of confusion.
- Determining the treatment of amounts paid or incurred to acquire or produce materials and supplies
- Determining whether an expenditure qualifies for the de minimis safe harbor
- Determining whether an expenditure results in a deductible repair or capitalizable improvement
Because the regulations govern the treatment of all costs related to tangible property, virtually all taxpayers that purchase or produce tangible property are affected by these new rules. Taxpayers should consult with their tax advisors before making any decisions regarding the federal income tax treatment of any costs paid or incurred with respect to tangible property.
In September 2013 and August 2014, the IRS and the Treasury Department released final regulations governing the federal income tax treatment of costs paid or incurred with respect to tangible property. The final regulations provide the framework for determining the deductibility versus capitalization of costs incurred for materials and supplies, repairs and maintenance and other tangible assets. Specifically, the final regulations provide rules in the following five general areas:
- Materials and supplies
- Capital expenditures in general (including the de minimis safe harbor)
- Costs to acquire or produce tangible property
- Costs to improve tangible property
- Dispositions of MACRS property (including components thereof) and general asset accounts
The final regulations are generally effective for tax years beginning on or after Jan. 1, 2014.
For additional information, listen to our recorded webcast Taking Action: Transitional guidance under the tangible property regulations or download a copy of Common questions about the tangible property regulations.