Repair vs. capitalization analysis offers a chance for building owners to realize additional savings—though the process is far from simple. Thanks to federal court cases and IRS rulings, there are windows for business owners to take advantage of opportunities to identify certain fixed asset items and reclassify them as a repair. In doing so, the deduction available to the taxpayer can be significantly greater.
However, figuring out what can be capitalized and what can be deducted as a repair can be a tricky proposition—and the IRS' recent changes to the regulations have only further muddied the waters. Now, many items that previously could be written off as repairs have to be capitalized (although, unlike in the past, replaced structural components can now be written off).
Perhaps the biggest change, however, is that taxpayers now must identify nine units of property relating to their structural components, and these units must be documented and valued. For this reason, Cost Segregation Studies can be even more important, as they provide a full definition of each of these structural components. Even if a repair vs. capitalization analysis is done years in the future, an MS Consultants Cost Segregation Study will still provide a great deal of utility.
Repair vs. capitalization analysis can be tricky—take a look through the IRS' Audit Technique Guide on the subject to learn a little more—though please note this guide has not been updated since the new regulations have been released. And if you'd like to learn more, or if you'd like to discuss what kind of savings you could see, contact MS Consultants today.