The Department of the Treasury finalized new regulations in 2013 and 2014 that will dramatically affect the income taxation of property owners and other businesses. The regulations, commonly known as the Tangible Property Regulations or the Repair Regulations, were the culmination of nearly a decade of government effort to reduce confusion (and litigation) over what expenses may be immediately deducted and what must be capitalized and depreciated over time. This article will address a few noteworthy changes that affect owners of real property.
A taxpayer may deduct all of its ordinary and necessary business expenses paid or incurred in its trade or business under Internal Revenue Code Section 162, including repairs to the taxpayer’s properties. However, Code Section 263(a) provides that no deduction is allowed for amounts paid out for “new buildings or for permanent improvements or betterments made to increase the value of any property” and “any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made.”
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