A quick read on what the Final Repair Regs mean – 263(a)


In order to readjust and clarify the repair regulations and make them more taxpayer friendly, the IRS recently made a series of changes. These regulations indicate when taxpayers need to capitalize or deduct expenditures associated with the maintenance, upkeep, and improvement on business properties and other fixed assets.

More than four million taxpayers will be affected by these most recent changes regarding the repair regulations, so all businesses should be adjusting their method of accounting to fit these new standards. This way, the taxpayer won’t be missing out on opportunities to apply tax deductions.

What Do These Revisions on Repair Regulations Mean?

The main goal of these new regulations is to more concretely give taxpayers an idea about whether or not their repairs can be deducted or should be capitalized. Though the IRS has issued several temporary solutions to this problem, these new repair regulations will be permanent. Fortunately, they are aimed at making the deduction and capitalization determination more defined.

The major changes to the old repair regulations include:

  • A routine maintenance safe harbor: Taxpayers are now able to deduct repairs that have to be done at least twice in the span of 10 years or more than once during the asset’s expected useful life.
  • Small taxpayer safe harbor: Companies with less than $10,000,000 in revenue and a building worth $1,000,000 in basis can elect the small taxpayer safe harbor. This allows them to opt out of the requirement to break out the nine units of property. They can elect annually to deduct up to $10,000 or two percent of the building basis.
  • De minimis safe harbor: Regarding materials and supplies, the aggregate ceiling has been replaced with a per-item or per-invoice limit. This amount is $5,000 for companies with audited financial statements and $500 for non-audited financial statements. Most taxpayers will fall under the latter category.
  • Repairs and maintenance: An “improvement” now refers to a betterment, restoration, or adaptation of a property. Improvements must be capitalized unless the expenditures pass the three-part test and the interdependency test.

Turning Attention to the New Repair Regulations

These changes to the repair regulations will be effective at the beginning of 2014, which means that a business will need to reevaluate the accounting method that it will be using. Please note that in order to incorporate the aforementioned options, the taxpayer must incorporate a written policy and create accounting methods accordingly prior to January 1st, 2014. Additionally, if the new repair regulations happen to work in their favor retrospectively, the taxpayer can make and incorporate adjustments using a change of accounting method (3115).

The revised repair regulations will require a slightly more in-depth look at a business’ fixed assets. However, this process is very important because, beginning in 2014, taxpayers will be held to this new standard; the old ones will be unacceptable and certain elections must be made. It should also be noted that any repairs and/or maintenance that resulted in disposition or abandonment will be lost if not utilized in the current tax year unless they elect to adopt the temporary regulations for 2012-2013.

In order to ensure that taxpayer’s are on par with and understand the IRS’ adaptations to the repair regulations, talk to the qualified representatives at Engineered Tax Services today, contact us here.

Kimberly Merrill, Senior VP | Ogden, UT | 801-689-3232

While working with ETS, Kimberly has personally secured millions of dollars in tax incentives for Fortune 100 companies, architects, and CPA firms across the country. Because her attention to detail and passion for success is paramount, she has the ability to recognize regularly missed opportunities. Kimberly’s project management skills are unmatched, and her client relationships reflect this. Kimberly is also a dynamic speaker and provides continuing education seminars at national conventions, trade shows, and industry alliances on a monthly basis


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