NEW IRS REPAIR REGULATIONS
OPPORTUNITIES AND REQUIREMENTS
Determining whether an improvement should be capitalized or expensed has long been a confusing task for many taxpayers and accountants. The IRS recently published comprehensive regulations to clarify the proper treatment of tangible assets. The regulations, which are effective beginning with 2012 tax returns, will impact all taxpayers that acquire, produce, or improve tangible property.
The regulations have also introduced additional tax saving opportunities for commercial property owners.
OPPORTUNITY #1
STRUCTURAL COMPONENT RETIREMENT
Opportunity Taxpayers are now allowed to recognize a loss on the disposition of a structural component of a building instead of continuing to depreciate the retired component.
Challenge Most taxpayers cannot easily identify the cost basis of retired components to accurately calculate the disposition loss.
Solution Our cost estimating and appraisal expertise, routinely used as part of our cost segregation studies, will allow us to identify the costs of retired structural components, even if the property has been in service for many years.
OPPORTUNITY #2
LEASEHOLD IMPROVEMENT RETIREMENT
Opportunity Taxpayers can recognize a loss on the disposition of leasehold improvements that are abandoned at the end of a lease.
Challenge Most taxpayers cannot easily identify the cost basis of leasehold improvements on a tenant by tenant basis, especially for a multi-tenant property that was acquired with tenants already in place.
Solution Our cost estimating and appraisal expertise, routinely used as part of our cost segregation studies, will allow us to identify the basis allocable to the fit-out for individual tenant spaces, even if the property has been in service for many years.
ADDITIONAL REQUIREMENT - BUILDING SYSTEMS
Taxpayers are now required to analyze improvement costs relative to eight building systems defined in the regulations. An improvement cost is treated as a capital expenditure if it results in an improvement to the building structure or to any of the following building systems.
- heating, ventilation, and air conditioning systems
- plumbing systems
- electrical systems
- escalators
- elevators
- fire protection and alarm systems
- security systems
- gas distribution systems
This requirement will result in more costs being capitalized than under the prior guidelines.
Requirement Analyze improvement costs relative to eight building systems.
Challenge How to allocate costs to the building systems to ensure compliance and help justify expensing for eligible improvements.
Solution Our cost estimating and appraisal expertise routinely used as part of cost segregation studies will allow us to allocate the facility cost basis to the building systems.
Call us at 732.548.3855 so we can help you capitalize on opportunities created by the new regulations.
