In September 2013, the Internal Revenue Service (IRS) released final regulations governing what expenses can be deducted as repairs versus what must be capitalized and depreciated over multiple years. The regulations define the treatment of expenditures for acquiring, producing, or improving tangible property. These new regulations, commonly referred to as the “Repairs Regulations” or “Tangible Property Regulations,” went into effect January 1, 2014. Since nearly all businesses have some kind of fixed assets, virtually every business is affected by these new rules.
The fundamental concept of the new rules is property “improvement.” If an expenditure for work performed fits within the IRS definition of an “improvement,” then the costs must be capitalized. This also includes costs that facilitate the acquisition or production of the property (except for employee compensation and overhead costs). These rules apply to buildings, leasehold improvements, land and land improvements and also to other purchases, including computers, phone systems, vehicles, furniture, equipment, carpeting, and even spare parts.
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