Implementing the New Tangible Property Regulations - A Little Pain for a Lot of Gain

Now that we’re through the first wave of tax filings for the 2014 tax year, it’s a good time to reflect on our experiences in helping clients implement the new tangible property regulations.

I must admit that we were all a little anxious about the size of the task and how it would affect our tight schedules during the winter tax-filing season.  But we made it through (so far) with great success.  How did we do it? Generally speaking, we focused on those clients where the potential impact of the regulations could be significant based on their historical approach to capitalization of improvements and volume of fixed asset additions.

Our typical approach was to sit down with the client to review their fixed assert schedules and capitalization policies and explain how the new regulations could impact them. We found that for the most part, our clients have been fairly conservative in capitalizing improvements over the years, and many of the capitalized improvements could now be written off under the new regulations. This was because the expenditures did not rise to the level of a “betterment” or “restoration” under the new regulations, or they qualified for the new “routine-maintenance safe harbor”.  Here are just a few examples of the write-offs that we found:

  • Parking lot repaving (qualified for routine maintenance safe harbor)
  • Trucking company dock replacements (not a restoration)
  • Heavy machinery overhauls (qualified for routine maintenance safe harbor)
  • Partial roof replacements (not a restoration)
  • Office remodeling projects (not a betterment)

Of course the review process took some effort, but this effort was evenly shared between us and our clients.  The result in most cases was some really nice tax deductions (e.g., “Section 481(a) adjustments”) in the 2014 tax returns.

With the April 15 filing deadline behind us, we’re ready to finish the task for those clients on extension until September 15.  The summer goes quick, so start reviewing those fixed asset schedules now – a little painful, but could be very profitable!

Contact us with questions regarding the new tangible property regulations and visit our Tax Services webpage to read about our different service offerings.

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