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Late last year, the IRS issued final tangible property repair regulations. This affects businesses that have made repairs or improvements to tangible property, such as buildings, machinery, equipment and vehicles.
Key changes: Costs incurred to acquire, produce or improve tangible property must be depreciated. But costs incurred on incidental repairs and maintenance can be expensed and immediately deducted. The final IRS regulations make distinguishing between repairs and improvements simpler. Here are some key provisions:
- Routine maintenance safe harbor. Recurring activities dedicated to keeping property in efficient operating condition can be expensed. Routine activities are those that your business reasonably expects to perform more than once during the property’s “class life,” as defined by the IRS.
- Small business safe harbor. For buildings that initially cost $1 million or less, qualified small businesses may elect to deduct the lesser of $10,000 or 2% of the adjusted basis of the property for repairs, maintenance, improvements and similar activities each year. (A qualified small business is generally one with gross receipts of $10 million or less.)
- Materials and supplies. The final regulations increase the dollar threshold for property that’s exempt from depreciation from $100 to $200. In addition:
- Incidental materials and supplies (such as office and cleaning supplies) can be deducted when purchased.
- Non-incidental materials and supplies (such as small engine parts, saw blades, and fuel and motor oil) can be deducted only after first used or consumed.
The final regulations also address how to identify “units of property” when distinguishing repairs from improvements in relation to commercial buildings.
These are only some of the rules under the final regulations, which apply to tax years beginning on or after January 1, 2014. Contact GTM to learn exactly how the final regulations apply to you and ensure that you’re taking all of the repair and maintenance deductions you’re entitled to.
