The Recently Issued Tangible Property Regulations: Small Business Edition

Written by Frances Kim. Updated Jan 28, 2016.

The_Recently_Issued_Tangible_Property_Regulations_Small_Business_Edition.jpgAlthough the final regulations are most significant for fixed asset intensive industries (i.e. electric utilities, telecom, retail, etc.), or real estate property owners that consistently incur capital expenditures to maintain their facilities, small business owners are also seeing some advantages from certain aspects of the Tangible Property Regulations.

Small businesses like yours are able to deduct many expenditures immediately and accelerate the depreciation on others, rather than spread them out over a longer period of years as annual depreciation deductions.
Historically, deducting all ordinary or necessary expenses incurred during a taxable year in carrying on your trade or business – including the costs of certain materials, supplies, repairs and maintenance – is allowable, per section 162 of the Internal Revenue Code (IRC). 

However, Section 263(a) of the IRC requires taxpayers to capitalize the costs of acquiring, producing and improving tangible property.
 
The final Tangible Property Regulations, issued in late 2013, provided a safe harbor election that allows qualifying businesses to immediately deduct purchases of tangible property below certain dollar thresholds.

The De Minimis Safe Harbor Limit

The De Minimis Safe Harbor is an annual tax return election that permits taxpayers to currently deduct expenditures they would otherwise have to capitalize for the purchase of tangible property (including materials and supplies) if the taxpayer:

1. Has an accounting policy as of the beginning of the tax year to expense (for non-tax purposes) amounts paid for property costing less than a specified dollar amount, or amounts paid for property with an economic useful life of 12 months or less; and

2. Follows that policy in its books and records.

Effective for taxable years beginning on or after 1/1/16, the De Minimis Safe Harbor limit related to costs incurred in acquiring tangible personal property for small business taxpayers without an applicable financial statement has increased from $500 to $2,500.

Taken from the IRS’ website: “In addition, the IRS will provide audit protection to eligible businesses by not challenging the use of the $2,500 threshold for tax years ending before January 1, 2016 if the taxpayer otherwise satisfies the requirements of Treasury Regulation § 1.263(a)-1(f)(1)(ii).”

This threshold increase greatly simplifies taxes for small businesses, as recordkeeping and paperwork is less of a burden. You no longer have to determine whether every small-dollar expenditure for your tangible property is properly classified.

The new Tangible Property Regulations provide a number of simplifying alternatives for small business taxpayers. To ensure you identify every deduction opportunity and determine if you qualify for simplified procedures, it is recommended that you speak with a Tangible Personal Property tax expert.

Ready to benefit from the new IRS repair regulations? Learn more about cost segregation by downloading your complimentary guide.

Maximizing The Benefits Of Cost Segregation  Manage your fixed assets activity with cost segregation to maximize tax  savings for your real estate property Download Guide

Topics: Cost Segregation, Property Incentives

Frances Kim

Written by Frances Kim

As one of the first CTI employees, Frances has held many key positions and has played an integral role in our diversification process. With more than 10 years in customer service and management, Frances’ proven adaptability has enabled her to manage projects for clients ranging from small start-ups to Fortune 500 companies.