IRS Makes Big Change for Repair or Improvement Designation

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In December 2011 the IRS issued temporary regulations regarding the Repairs vs Capital Asset question that always comes up for landlords. They then followed those changes up with Revenue Proc 2012-19 and Revenue Proc 2012-20.

Bottomline? If you have real estate property, then you have a lot of changes coming your way with the 2012 return.

There are new definitions for materials &supplies,a de minimus rule that is based on your gross receipts or total depreciation and a couple of safe harbors.

We’ll be covering more about this in the update to Real Estate Acocuntant in a Box. If you’ve already bought this full information –product or are about to, you will receive these updates when finished…for free.

There are a lot of changes contained in those new Regulations and the two Revenue Procedures. Today, I want to focus on a change that might mean you need to file a Form 3115, Change in Accounting, with your tax return.

The new rules call for a difference in the unit of property determination for buildings. A building and its structural components are a single unit of property. For application of the improvement rules, however, “building systems” constitute separate units of property from the building structure. Consequently, for purposes of the improvement analysis the units of a building property are:

·The building structure (exterior walls, roof, windows, doors, etc.)

·The building systems (HVAC, plumbing, electrical, escalators, elevators, fire-protection and alarm systems, security systems, gas distribution systems, and other structural components identified as building systems by the IRS

This componentizing of a building into several units of property is a significant change from the prior proposed regulations. Accordingly, taxpayers that deducted repairs in prior years relating to any of these building systems will need to determine whether such treatment is still appropriate. If not, it may be necessary to request a change in accounting method.

That’s just one of the changes. Remember if you act before Friday, 11/30 at 5 pm Pacific, you’ll still get the Real Estate Accountant in a Box for $299.  One minute after 5 pm, and the price goes up to $497.  You will receive updates for real estate related tax items such as the changes talked about in this article FREE as soon as they are published.

Go to http://www.RealEstateLoopholes.combefore Friday 11/30 at 5 pm.

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