Is Your Business Eligible for the Tangible Property Tax Deduction?

by: Smith and Howard

June 24, 2015

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While you’ve likely heard plenty about the Tangible Property Final Regulations issued by the IRS in 2013, it’s worth taking a second look because several of the revisions could have a real impact on your business this year and beyond.

Manufacturers and distributors, this is aimed at you:

  • Did you replace a portion of your roof or roof membrane?
  • Did you replace a roof in the past and are currently still depreciating the old and the new roof?
  • Did you make other capital improvements to an existing asset?

If you answered yes to any of these questions, there are deductions to be had and time is of the essence. Let’s look at a few considerations, which may get a little “IRS-y,” but a little bit of technical accounting that saves your manufacturing or distribution business tax dollars is probably worth this brief highlight:

  1. Under the “restoration and betterment” capitalization standard, a replacement of a roof membrane, rather than the full roof structure (which happens more often than not) IS deductible, meaning a deduction today, rather than capitalize and deduct over time.
  2. Let’s say that roof repair was done back in 2007, and because the tax code at the time of the roof repair forced the taxpayer to capitalize rather than deduct,  your business may still be depreciating the existing roof and the new roof.  You could file a change of accounting method with your business return and WRITE OFF the original roof that was purchased when you bought the building.
  3. Much like the commentary in the “restoration and betterment” statement above, there is another opportunity if your business replaced a “substantial structural part.”  This one gets a little murky as there is no official “bright-line” in the regulations, but the generally rule of thumb is that more than 33% replacement is a substantial structural part; therefore, less than that WOULD qualify for expenses recognition in the current year.  So, for example, replacing 30% of the shelving units in the warehouse would qualify for a current year deduction.

Like any program, there are requirements to qualify for current deductions and steps that need to be taken with the filing of your business’ tax return to ensure that the business meets the requirements and claims the deserved deductions. The time to act is now—some of these opportunities won’t be around for the next filing season.

Again, be sure to act fast if you are eligible for these deductions.  If you have questions and would like to speak to a top Atlanta CPA firm about whether your business qualifies under the Tangible Property Final Regulations, please contact Cas Pittman.

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