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Home / Blog / Harbor Tax Group News : Tangible Property Regulations (Capitalization vs. Repair)


The tangible property regulations are in effect as of January 1, 2014. All taxpayers with fixed assets will be required to make at least one accounting method change to comply. This must be done before filing 2014 returns. These regulations create new opportunities for tax savings, especially in 2014. Here’s where to start…

Review fixed asset schedules for:

  • Items that have been disposed, but are still on schedule. For example: tenant improvements that were replaced, computers or other equipment no longer in service.
  • Items that appear to be included on schedule more than once. For example: roof in original purchase and roof replacement, HVAC replacements.
  • Items that could have been expensed under the new regulation rules, but were capitalized.*
  • Items that should have been capitalized under the new regulation rules, but were expensed.*
  • Can the asset descriptions be clarified for future disposition purposes (“12 computers” vs. “office equipment”, “30 windows” vs. “building improvements”)?
  • Would a detailed cost segregation on the acquisition of real property create additional opportunities for accelerated depreciation and disposition write-offs?

Also look for:

  • Items that are being depreciated over an incorrect method or period.
  • Bonus depreciation was not consistently taken on same-class assets in prior years.

* Many factors must be addressed to determine whether an item should be capitalized or expensed. The regulations address whether the expenditure was a betterment, restoration or adaptation. Was quality, capacity or efficiency materially increased? What was the condition of the asset being replaced, and was it a major component or substantial structural part? Assistance is available to make these determinations.

Our services involve the combined efforts of our seasoned tax professionals and engineers with extensive tax expertise, industry knowledge, and accounting skills. All engagements are performed under the direct supervision of Cathy Harris, a CPA and certified member of the American Society of Cost Segregation Professionals. Cathy has over 19 years experience in tax and over 14 years experience in cost segregation. She has followed the proposed changes in the tangible property regulations since 2006, when they were first released. In addition, Cathy has spoken at numerous local and national seminars on these regulations and has become an authority on the subject.

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