IRS Repair Regulations Simplified!
See also Real Estate
Over the weekend the IRS issued Revenue Procedure 2015-20 which provides significant changes and relief to those implementing IRS repair regulations. Remember, the new repair regulations (effective January 1, 2014) created a framework for determining the difference between capital expenditures from supplies, repairs, maintenance and other deductible business expenses. These rules provide clear and specific direction on when taxpayers need to capitalize and when repairs to tangible property can be recognized as an expense and deducted. Unfortunately, the new regulations came with an increased amount of seemingly complex administrative tasks to maintain compliance. The instructions issued over the weekend provide simplified procedures to offer relief to many companies. To help clients, prospects and others understand how the simplified regulations, Hanson & Company has provided a brief summary of key points below.
Key Information about the Simplified Procedures
- Qualifying Companies – Not every company qualifies to take advantage of the simplified procedures. According to the IRS, simplified procedures are generally available to small businesses (including sole proprietors) with assets totaling less than $10M or average gross annual receipts totaling $10M for the prior three tax years. Companies that do not meet this criterion are not eligible to use the simplified procedures.
- Form 3115 Waiver – Before this weekend’s announcements companies (regardless of size) were required to submit IRS Form 3115 – Application for Change in Accounting Method to properly follow the new regulations. To many this requirement seemed overkill and an administrative burden. For companies using the simplified procedures the IRS Form 3115 requirement has been waived. This means that companies can make the necessary changes without having to file any documents with the IRS beforehand.
- Change of Accounting Method - Not only do companies using the simplified procedures have the Form 3115 waiver, but they can also conduct a change of accounting method for 2014 on a prospective basis. This makes it easier for companies to implement aspects of the new repair regulations.
- Safe Harbor Threshold – The IRS also added an interesting twist to the announcement. They asked for comments on whether the $500 safe harbor threshold should be increased for those choosing to deduct rather than capitalize certain expenses. The request for comment certainly means the IRS is contemplating additional changes for the future.
Have questions about how the simplified regulations can be implemented at your company? These changes are an impetus to review your repair expenses to ensure all have been properly classified. Our professionals are experienced in the review process and can help identify missed deduction opportunities. For additional information on the new IRS repair regulations and recent guidance, please contact us at (303) 388-1010, or click here for email. We look forward to speaking with you soon.