February 26, 2015
Article by Edward Reitmeyer, Tax & Business Services Partner, "What Every Taxpayer Needs to Know this Tax Season," Featured in Philadelphia Business Journal
The annual anguish of tax filing may be a bit more painful this year for some taxpayers, as new regulations adopted by the Internal Revenue Service will require an additional form to be filed by taxpayers in every industry.
The new rules, commonly called "repair regulations," entail a completely new approach to capitalizing expenditures relating to tangible property. They provide guidance on capitalization and depreciation, treatment of materials and supplies, and deductions for disposals and repairs. The IRS is requiring one-time tax filings and some annual elections that will need to occur in 2014 tax returns, regardless of entity type.
Real estate industry taxpayers face especially significant challenges in the new regulations. Previously, if your company owned a building and made substantial repairs or replaced parts of the facility, the decision to capitalize or deduct the cost was determined primarily by comparing the cost of the improvements to that of the entire building. Other factors also came into play, such as the expected life of the property, overall value etc. While some of these factors are still used under the new regulations, the IRS now requires that a building no longer be classified as one unit of property, but instead separated into nine separate units of property. These units of property are the Building Structure, HVAC System, Plumbing Systems, Electrical Systems, Elevators, Escalators, Fire Protection, Security Systems, and Gas Distribution Systems.