Tangible Property Regulations

The IRS issued Treasury Decision 9636, which included 222 pages of guidance regarding the deduction and capitalization of expenditures related to tangible property. Tangible property in a business is anything that can be touched.

Three major changes that go into effect January 1, 2014, include the following: 

1. Materials and Supplies The definition of materials and supplies has been expanded to include property (not including inventory) that has a cost of $200 or less. For example, if a business purchases a printer for $175, the business can generally deduct the cost instead of capitalizing and depreciating over five years.
2. Repair or Improvement To determine whether an expense may be deducted as a repair or must be capitalized as an improvement, the business may use their financial accounting policies as a guideline up to $5,000. Small businesses without audited financial statements may adopt.
3. Improvements to Buildings Qualifying small businesses have the option of applying the improvement rules to an eligible building property if the total amount paid during the taxable year for repairs, maintenance, improvement and similar activities performed on the eligible building does not exceed the lesser of $10,000 or 2% of the un-adjusted basis of the building.