If your business has depreciable assets, you have undoubtedly heard about the new repair regulations. What you might not have heard is that your business must comply with the regulations by the 2014 tax return deadline or there may be adverse consequences. The regulations cover numerous topics relating to tangible property, including materials and supplies, repairs and maintenance, disposition rules, de minimis capitalization thresholds, to name a few.
How do you comply?
The regulations provide new elections that are implemented by filing statements on a timely filed tax return. The elections include an election to capitalize repairs and maintenance costs, and the de minimis safe harbor election.
The remaining provisions are considered accounting methods. This means form 3115 must be filed with the IRS via a secure consent to change your accounting method. The IRS is giving you a limited time freebie by allowing you to use the automatic consent procedure.
Why is it important to comply by the 2014 tax year?
Below are possible consequences of not complying with the new repair regulations in a timely manner:
-Expensive fees for filing form 3115, once automatic consent is not available
-The loss of possible depreciation deductions if dispositions are not taken when they should be
-The loss of possible repair deductions you took in prior years
-Items that are now currently deductible under the new regulations may have to be capitalized
-Potential audit risk due to the IRS expecting all business returns with tangible property to file form 3115
-Loss of the opportunity to take advantage of the partial asset disposition rules for building components placed in service before 2014