New Regulations on Repair vs. Capitalization question.

[Burke]

Does anyone interpret these rules & regs as pertaining to rental properties?

[TaxGuyBill]

Gretel - this is from the preamble of the final regulations. Is this of help? I'm sure all your clients had written policies at the beginning of 2014 - I read this to say that no Form 3115 is necessary to take advantage of the $500 safe harbor. Am I reading that correctly?

Yes, you are reading the correctly.

Does anyone interpret these rules & regs as pertaining to rental properties?

Yes.

[Gretel]

Written policy

Gretel - this is from the preamble of the final regulations. Is this of help? I'm sure all your clients had written policies at the beginning of 2014 - I read this to say that no Form 3115 is necessary to take advantage of the $500 safe harbor. Am I reading that correctly? Of course, the safe harbor election must be made on the return but I'm sure the software providers have a "check the box" in their software.

I. Change in accounting procedures not change in method of accounting

Several commenters questioned whether a change in a taxpayer's financial accounting procedures (for example, its financial accounting capitalization policy) is a change in method of accounting for de minimis expenses to which the provisions of sections 446 and 481 and the accompanying regulations apply. The final regulations provide that the use of the de minimis safe harbor is a taxable year election and may not be made by the filing of an application for a change in method of accounting. Thus, if a taxpayer meets the requirements for the safe harbor, which requires, in part, having written accounting procedures in place at the beginning of the taxable year and treating amounts paid for property as an expense in accordance with those procedures, then a change in the procedures, by itself, is not a change in accounting method. For example, if a taxpayer's written financial accounting capitalization policy at the beginning of 2014 states that amounts paid for property costing less than $200 will be treated as an expense, and the taxpayer changes its written policy as of the beginning of 2015 to treat amounts paid for property costing less that $500 as an expense, the taxpayer is not required to file an application for its 2015 taxable year to change its method of accounting for applying the de minimis safe harbor or determining amounts paid to acquire or produce tangible property under § 1.263(a)-1(f).

It seems like every speaker/Professional Orgs agree that the de minimis exception does not require form 3115. I have written procedures in place for all businesses not for small rental property owners. That rental properties were included came as a surprise to me since I only could find the wording "business". Disagreement is if taxpayers with no applicable financial statements need to have written procedures. I am attending a NATP seminar and NATP seems to be certain that these taxpayers do not need to have written procedures.

[New York Enrolled Agent]

Disagreement is if taxpayers with no applicable financial statements need to have written procedures. I am attending a NATP seminar and NATP seems to be certain that these taxpayers do not need to have written procedures.

Gretel - missed you at NTPI this year.

In any case, this is from the regulations - note the difference with or without AFS.

(i) Taxpayer with applicable financial statement. A taxpayer electing to apply the de minimis safe harbor ...

(A) The taxpayer has an applicable financial statement (as defined in paragraph (f)(4) of this section);

(B) The taxpayer has at the beginning of the taxable year written accounting procedures treating as an expense for non-tax purposes--

(1) Amounts paid for property costing less than a specified dollar amount; or

(2) Amounts paid for property with an economic useful life (as defined in § 1.162-3(c)(3)) of 12 months or less;

(C) The taxpayer treats the amount paid for the property as an expense on its applicable financial statement in accordance with its written accounting procedures; and

(D) The amount paid for the property does not exceed $5,000 per invoice (or per item as substantiated by the invoice) ...



(ii) Taxpayer without applicable financial statement. A taxpayer electing to apply the de minimis safe harbor ...

(A) The taxpayer does not have an applicable financial statement (as defined in paragraph (f)(4) of this section);

(B) The taxpayer has at the beginning of the taxable year accounting procedures treating as an expense for non-tax purposes--

(1) Amounts paid for property costing less than a specified dollar amount; or

(2) Amounts paid for property with an economic useful life (as defined in § 1.162-3(c)(3)) of 12 months or less;

(C) The taxpayer treats the amount paid for the property as an expense on its books and records in accordance with these accounting procedures; and

(D) The amount paid for the property does not exceed $500 per invoice (or per item as substantiated by the invoice) or ...

[Gretel]

Gretel - missed you at NTPI this year.

In any case, this is from the regulations - note the difference with or without AFS.

(i) Taxpayer with applicable financial statement. A taxpayer electing to apply the de minimis safe harbor ...

(A) The taxpayer has an applicable financial statement (as defined in paragraph (f)(4) of this section);

(B) The taxpayer has at the beginning of the taxable year written accounting procedures treating as an expense for non-tax purposes--

(1) Amounts paid for property costing less than a specified dollar amount; or

(2) Amounts paid for property with an economic useful life (as defined in § 1.162-3(c)(3)) of 12 months or less;

(C) The taxpayer treats the amount paid for the property as an expense on its applicable financial statement in accordance with its written accounting procedures; and

(D) The amount paid for the property does not exceed $5,000 per invoice (or per item as substantiated by the invoice) ...



(ii) Taxpayer without applicable financial statement. A taxpayer electing to apply the de minimis safe harbor ...

(A) The taxpayer does not have an applicable financial statement (as defined in paragraph (f)(4) of this section);

(B) The taxpayer has at the beginning of the taxable year accounting procedures treating as an expense for non-tax purposes--

(1) Amounts paid for property costing less than a specified dollar amount; or

(2) Amounts paid for property with an economic useful life (as defined in § 1.162-3(c)(3)) of 12 months or less;

(C) The taxpayer treats the amount paid for the property as an expense on its books and records in accordance with these accounting procedures; and

(D) The amount paid for the property does not exceed $500 per invoice (or per item as substantiated by the invoice) or ...

NYEA, thanks for clarification. I hope at some point in time a chart is available which outlines which of the changes require form 3115 and if form 3115 is not required how to make election (by form or just by doing it).

Anyway, I wanted to come to NTPI but I won't come back to the Cosmopolitan in Las Vegas.