New Report Focuses on Capitalizing or Deducting Expenditures under Tangible Property Regs

Thomson Reuters Checkpoint has released a special report, Capitalizing or Deducting Expenditures under the Tangible Property Regulations. The report is intended to help guide tax practitioners in determining which expenditures on tangible properties should be deductible or capitalized.

The report seeks to clarify the proper categorization of the final tangible property expenditure guidelines (TD 9636) released by the IRS, which apply beginning on or after January 1, 2014. The final regulations follow the same format as the 2011 temporary regulations, focusing on:

Materials and supplies (Reg. 1.162-3)
Repairs and maintenance (Reg. 1.1.162-4)
Capital expenditures [Reg. 1.263(a)-1]
Cost to acquire or produce property [Reg. 1.263(a)-2]
Costs to improve property [Reg. 1.263(a)-3]

IRC Sec. 263(a) requires the capitalization of amounts paid to acquire, produce or improve tangible property, while IRC Sec. 162(a) allows a deduction for ordinary and necessary expenses paid or incurred in carrying on a trade or business, including the costs of supplies, repairs and maintenance.

“The latest IRS regulations have the same format as the temporary regulations released in 2011, but they are more user-friendly and provide a number of new safe harbors,” says James Keller, executive editor with the Tax & Accounting business of Thomson Reuters.

The report explains different ways that practitioners can transition to the latest guidelines, and also provides the exceptions and allowances provided under each expenditure category as well as tips that can help reduce tax liabilities.

The special report is available for download at no cost at tax.thomsonreuters.com/TangibleProperty.

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