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Capitalization Policy to Expense Certain Asset Acquisitions

12.18.14

Let BPM help you navigate through the final regulations on deduction and capitalization of expenditures related to tangible property (commonly known as the "repair and maintenance regulations"). This will affect all taxpayers that acquire, produce, or improve tangible property.

The new guidelines refine and simplify some rules and provide safe harbor amounts for capitalization of property and expensing materials and supplies. Effective for years starting on or after January 1, 2014, every taxpayer who is affected by these regulations should have an appropriate Capitalization Policy in place.

BPM has put together a sample policy to help you understand these regulations. Taxpayers with Applicable Financial Statements, that is, audited financial statements (not reviewed or compiled financials unless required by a federal or state agency other than a bank) are permitted to elect up to $5,000 as a threshold amount for a minimum capitalization of tangible property. Taxpayers without Applicable Financial Statements are permitted to elect up to $500 as a threshold.

Taxpayers should adopt a policy before the start of their next tax year if they do not already have one in place.