Tangible Property Repair Regulations

Transcription

1 Tangible Property Repair Regulations Effective 2014 and modified February 2015 Presented by Charlotte Clark o 1329 South 800 East, Orem, UT // p // w squire.com

2 What do the regulations say, and do I have to follow them? The regulations are mandatory. If you are in business or have rental properties you have to follow them. They are required to be adopted for your 2014 tax return. In some cases, they will give you more tax deductions in They are complex and voluminous. They define when expenses can be deducted vs capitalized (added to your depreciation schedule, and written off over time). Many of the benefits must be taken on your original 2014 return (not an amended return) // Tangible Property - Repair Regulations // February

3 Size does matter If your total assets are less than $10 million and Your average annual gross receipts are less than $10 million You are considered to be a small business taxpayer Your advantage the rules are still complex, but they are simpler to follow We will discuss the simpler version tonight // Tangible Property - Repair Regulations // February

4 What did the regulations change? These rules more clearly define the treatment of expenses or capitalization in the following areas (if tax law can ever be clear): A. Materials and Supplies B. Costs to acquire/produce tangible property C. Costs to improve tangible property D. Dispositions of tangible property E. Safe harbors and some specific exceptions are provided to allow for writing off expenditures // Tangible Property - Repair Regulations // February

5 Materials and Supplies You should consider electing a De Minimis safe harbor of $200 for items classified as materials and supplies. A. You can expense any materials and supplies below that amount immediately B. Materials and supplies above that amount, you expense when you place them in service C. This amount is per line item on the invoice D. If you don t elect it, the De Minimis safe harbor is $1 // Tangible Property - Repair Regulations // February

6 Costs to acquire or produce tangible property The following accounting policy needs to be established: A. A dollar amount for capitalizing it must be the same for book and for tax. If you have reviewed or audited financial statements the minimum safe harbor is $5,000. B. If you don t have audited financial statements the minimum safe harbor is $500 C. These amounts are per line item on the invoice // Tangible Property - Repair Regulations // February

7 Major Units of Properties need to be defined Each building is its own unit of property A Building is then broken down to its structure and 8 smaller systems which may have components that perform discrete functions Exterior land improvements including sidewalks, roadways, parking lots, sprinkler systems and landscaping Each production line is a plant and each plant is broken down into various components that perform discrete functions Each piece of equipment, not in a plant, that performs a discrete function is a separate unit of property // Tangible Property - Repair Regulations // February

8 Buildings are broken down to the structure and 8 Building Systems HVAC Plumbing Electrical Escalators Elevators Fire protection and alarm Security Gas Distribution // Tangible Property - Repair Regulations // February

9 Review each item on your fixed asset listing for items to remove from the 2014 year (that were purchased in 2014) Is this item now a material or supply? Ex A lot of items under $200 each Is this routine maintenance? Will I do it more than once in its life? Or for buildings, more than once in 10 years? Is it under my capitalization amount? Did I replace less than 30-40% of the unit of property, or if it is part of a building the component of the building system that performs a discrete function, or if it is part of a plant the component of the plant that performs a discrete function? Did I adapt it to a new or different use? (If the answer is yes, it stays on) Did I significantly improve the asset? (If the answer is yes, it stays on) // Tangible Property - Repair Regulations // February

10 Review the fixed asset schedule for items that you should consider removing from previous years (form 3115 would be required) Remember this is for your tax asset listing, not your books asset listing Does this asset now meet the new definition of repairs? Ex. Resurfacing the parking lot or less than 30% of a unit of property or discrete component of a building system or plant? When I added this asset, did I get rid of a previous one that is still on my depreciation schedule and is separately listed? // Tangible Property - Repair Regulations // February

11 Review your fixed asset listing for items from previous years that you might wish to remove (in order to get more deductions, form 3115 would be required) When I added this asset, did I have to get rid of a previous one? A. Example major remodels B. Example completely replacing the roof on a building Note you can choose to remove parts of assets // Tangible Property - Repair Regulations // February

12 Consider removal costs Have your contractors bill you separately for removal costs You may be able to expense the removal costs // Tangible Property - Repair Regulations // February

13 Why haven t I heard more about this? The IRS finalized the regulations in September 2014, and modified them in February 2015 Many tax practitioners don t seem to be very well informed about this (or are just getting informed now) Tell your friends and neighbors who have businesses or rental properties not to sign and send in their returns without having considered these regulations because some things cannot be done on amended returns, but it can be done on extended returns // Tangible Property - Repair Regulations // February

14 What if I am not a small business (I am more than $10 million)? Your return must include a couple of forms 3115 It should include some election statements The simplification simply removed the requirement to include the additional forms with the return // Tangible Property - Repair Regulations // February

15 What other things should I be watching for on my 2014 personal return that are new? The Affordable Care Act If your tax software is calculating a penalty check to see if there are exemptions or other ways to avoid it If you bought health insurance on the marketplace, and you are being charged a excess premium charge, there may be planning options // Tangible Property - Repair Regulations // February

16 Any questions? Thank you for your attendance // Tangible Property - Repair Regulations // February