Proposed Changes to Dispositions of Tangible Property under Section 168

Tax Professionals' Resource
October 7, 2013 — 1,905 views  
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The IRS has proposed some changes to the sections 162 (a) and 263 (a) with respect to reducing expenses related to property. Here, property refers to tangible property. There are also some changes to come about with regard to section 168, wherein dispositions of tangible property under the act will undergo certain tweaks.

Significant Changes will Affect Taxpayers

Together, the changes of the IRS property repair regulations will be significant enough to affect all taxpayers who have or are to get depreciable tangible property of any kind. If these taxpayers have already once filed for some change in the accounting used for earlier purchased property, the changes will have a greater impact on these people.

Revised Version Resolves Earlier Flaws

There were some fundamental flaws with the earlier Act regarding capitalization and deduction of expenses relating to the property of each individual owner. There were some temporary changes that had come out in 2011 which were used to resolve immediate issues at the time. Now in January 2014, the full changes will be out and will help solve earlier problems easily.

The final repairs regulations in its latest version incorporate a different manner of evaluating the depreciation and the value of any tangible property. Earlier on, there was a simple but frustrating conundrum where capitalization and expense was not properly handled, which was the cause of much unhappiness to most taxpayers.

The reason for concern was that amounts that were being taxed were vague due to the same issue. Now with the amended version of the document, the IRS has effectively fixed such problems and has resolved most of the previous issues. Now there is a higher threshold for those properties that are capitalization exempt.

De Minimis Safe Harbor Clause

Now the amount is two hundred dollars and above that fall under this category. Also, ‘de minimis’ safe harbor was another feature where the price range has been changed to solve discrepancies of the previous Act. Only one thousandth of a taxpayer’s total receipts could be used for income tax purposes and one fiftieth of the taxpayer’s overall depreciation could be used for amortization expense purposes in a financial statement.

IRS to Increase Ceilings and Threshold Levels

Most people had a lot of issues with those rules and had made it public. Now the IRS responds by expanding and allowing for a higher ceiling on such expenses and statements. The financial statements that are applicable for consolidated members of a group who together own a property is also changed. The section 168 proposal is getting much support for these reasons.

Now taxpayers who are members of such groups are included in the ‘de minimis’ safe harbor, but are not allowed to use this statement for federal income in income tax and deduction. The treatment of overhead and additional costs is also a little different now. While acquiring a new property, it is common that there are some expenses that go above the projections of such projects. These can also be included as long as bills and invoices are presented.

Tax Professionals' Resource