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State and Local Tax Issues Created by the Final Tangible Property Repair Regulations
Beginning January 1, an additional degree of uncertainty will be introduced to the area of state income taxation. Recently, the Internal Revenue Service issued final regulations on the treatment of repairs to tangible property. The rules in these regulations are collectively referred to as the "Repair Regulations," and they clarified and added new provisions to the previous federal rules dictating the capitalization of certain repairs made to tangible property.
In typical fashion following an announcement of a substantial federal tax law change, the states are pondering the effects and have yet to issue guidance. As such, the impact of the Repair Regulations on state income taxes is still uncertain, but is bound to create another layer of complexity to tax compliance.
Potential state tax ramifications include:
- State tax timing differences similar to those stemming from bonus depreciation
- Federal and state tax basis discrepancies relative to the timing difference
- State taxable income anomalies stemming from the apportionment of income or loss due to IRC Section 481(a) adjustments
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