Tangible Property Regulations Issued

Image by Eddy Van 3000
Image by Eddy Van 3000

Tangible Property Regulations Issued

Guidance affects all taxpayers who acquire, produce or improve tangible property

The IRS issued Treasury Decision 9636, which included 222 pages of guidance regarding the deduction and capitalization of expenditures related to tangible property.

Tangible property in a business is anything that can be touched.

Three major changes that you should now about that go into effect January 1, 2014, include the following:

1. Materials and Supplies

The definition of materials and supplies has been expanded to include property (not including inventory) that has a cost of $200 or less. For example, if a business purchases a printer for $175, the business can generally deduct the cost instead of capitalizing and depreciating over five years.

2. Repair or Improvement

To determine whether an expense may be deducted as a repair or must be capitalized as an improvement the business may use their financial accounting policies as a guideline, up to $5,000. Small businesses without audited financial statements may adopt an internal policy for non-tax reasons to expense property less than $500.

3. Improvements to Buildings

Qualifying small businesses have the option of applying the improvement rules to an eligible building property if the total amount paid during the taxable year for repairs, maintenance, improvement and similar activities performed on the eligible building does not exceed the lesser of $10,000 or two percent of the unadjusted basis of the building.†

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†Source: NATP