One year after implementation, new IRS rules on capitalization continue to baffle many project owners and their contractors. That is understandable, given the complexity of IRS
Section 263(a), Section 168(i) and Section 162 -- the provisions that declare when project owners must capitalize their expenses and when they can take traditional tax deductions.
In January of 2012, the IRS officially adopted the new capitalization rules it had been tweaking since 2008. The purpose of the rules, sometime referred to as “repair regulations,’’ is to clarify whether expenditures associated with tangible property should be considered capital improvements and depreciated over time, or whether they should be considered ordinary and necessary repairs and, thus, deducted immediately from income.
The regulations state that expenses related to constructing or improving a building, restoring property, or converting property to an alternate use must be depreciated. On the other hand, the rules allow taxpayers to deduct the cost of routine maintenance.
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Source: Shelley Woitena, CPA Texas Contractors Magazine, January 2013
