Comprehensive Analysis of Final Repair/ Capitalization and Proposed MACRS Disposition Regulations

(Source: CCH Incorporated) — The IRS’s long and tortuous repair regulation journey neared comple­tion with the issuance of final repair regulations in T.D. 9636 on September 19, 2013, and Rev. Proc. 2014-16 (I.R.B. 2014- 7, January 24, 2014) detailing the account­ing method changes needed to comply with the regulations. Unfortunately for taxpayers (and their return preparers), the journey to implement these rules has just begun. The journey’s ending date, however, is fixed: The regulations are effective for tax years begin­ning on or after January 1, 2014.

The last leg of the journey for the IRS will be the issuance of final regulations detail­ing the rules for dispositions of MACRS assets and general asset accounts. This fin­ishing section of the trip should be a veri­table breeze; the IRS will likely finalize the proposed versions of these regulations (also separately issued on September 19, 2013) with little or no change. The related rev­enue procedure for making accounting method changes under the Modified Ac­celerated Cost Recovery System (MACRS) regulations also needs to be issued but is expected to arrive in short order.

What’s Changed?

Changes to the temporary regs were made to “clarify, simplify, and refine,” as well as to create several new safe harbors. The most significant changes include:

• A revised and simplified de minimis safe harbor under Reg. §1.263(a)-1(f );
• The extension of the safe harbor for rou­tine maintenance to buildings;
• A new annual election for smaller tax­payers to deduct some maintenance and improvement costs for buildings;
• A new annual election to capitalize re­pair costs that are capitalized on the tax­payer’s books and records; and
• Refined criteria for defining betterments and restorations to tangible property.

The final regulations also adopt rules in the temporary regulations for accounting for MACRS property in item and mass as­set accounts and replace temporary regula­tions with proposed regulations for deal­ing with dispositions of MACRS property and GAAs.

Download our Comprehensive Report and learn about the:

• Simplified De Minimis Safe Harbor Covers Taxpayers with AFS
• Casualty Losses and Repair Deduction Compromise
• Routine Maintenance Safe Harbor Extended to Buildings
• New Building Maintenance Safe Harbor Election
• New Book Capitalization Safe Harbor Election
• Retroactive Elections Allowed for 2012 and 2013 Returns
• GAAs Out — Partial Disposition Elections In
• Accounting Method Changes Required in 2014