SKR+Co Alert: Revised capitalization policy and updated IRS final tangible property (“repair”) regulations

To say that this issue is complicated is an understatement. In our ongoing analysis of this issue, we discovered some inconsistencies. We recommend you use this information and the linked capitalization policy sample in place of earlier information and samples.

Take action now! Final tangible property ("repair") regulations require written policy by January 1, 2014

As we shared in an October Tax Alert and in our recent tax seminar, the IRS has issued final regulations which govern the capitalization of materials and supplies, amounts paid to acquire or produce tangible property, and expenditures relating to the betterment, adaptation, and restoration of tangible property.  One part of the regulations – the De Minimis Expensing Rule – requires taxpayers to have a written policy in place at the beginning of the taxable year to be able to expense amounts paid for:
 

• Property costing $5,000 or less per item/invoice, if there is an applicable financial statement, or
• Property costing $500 or less per item/invoice, if there is no applicable financial statement. 

 
Taxpayers may also expense amounts paid for property with an economic useful life of 12 months or less provided the amount per item/invoice does not exceed $5,000 (with an applicable financial statement) or $500 (without an applicable financial statement).   
 
Additionally, the taxpayer must treat the amount paid for the property as an expense on its books and records in accordance with the company’s written book capitalization policy.  
 
To help you take advantage of the new rules, we recommend you prepare a written Book Capitalization Policy before January 1, 2014.  A sample written policy can be accessed here.