The Repair Regulations put in effect on January 1, 2014, contain several elections and safe harbors. We have previously covered the de minimis safe harbor election (http://koscpa.blogspot.com/2014/08/de-minimis-safe-harbor.html), the routine maintenance safe harbor (http://koscpa.blogspot.com/2014/09/routine-maintenance-safe-harbor.html) while this article will address the capitalization election.
The Regulations provide taxpayers with an annual, irrevocable election to capitalize amounts paid during the taxable year for repair and maintenance of tangible property that are capitalized for book purposes. The amounts capitalized under the election are depreciated beginning when the asset is placed in service.
This election allows the taxpayer to align its tax treatment with capitalization policies used for its books and records, thereby eliminating any book-tax differences and reducing administrative costs. Taxpayers making this election can also avoid the application of difficult and often subjective rules in determining whether a particular expenditure is currently deductible as a repair or must be capitalized.
This annual election is made by attaching a statement to the taxpayer's timely filed (including extensions) original tax return for the tax year for which the election is made. Please contact a KOS advisor today if you would like to discuss how this election may apply to you or the next steps needed to obtain available tax benefits under the new Regulations.