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New IRS rules clarify when businesses must capitalize or expense costs

noreply@blogger.com (Pepper Horton)

May 13, 2014

The IRS has issued regulations intended to clarify for businesses which costs related to fixed assets must be capitalized and which can be currently expensed. The 200 pages of regulations are complex, but the safe harbor provisions on improvements are perhaps of most concern to small businesses. Here's an overview.


If your average annual gross sales are $10 million or less, you may choose to write off the cost of improvements made to an "eligible building." An eligible building is one that is owned or leased by the qualifying taxpayer and the unadjusted basis of the building is $1,000,000 or less.


Also, to be able to deduct the expenditures on your current-year's tax return, the yearly total paid for repairs, maintenance, and improvements cannot exceed the lesser of $10,000 or 2% of the building's unadjusted basis.



The regulations contain numerous complex provisions that could result in tax savings or additional costs for your business. The rules are effective for tax years beginning after 2013, so they will apply to your 2014 federal income tax return. In some cases, you can apply the new rules to prior years. If your company owns or leases fixed assets, contact us for assistance in applying the rules to your business.

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