{"id":996,"date":"2014-07-14T08:00:57","date_gmt":"2014-07-14T08:00:57","guid":{"rendered":"http:\/\/evergreensmallbusiness.com\/?p=996"},"modified":"2020-08-27T13:11:08","modified_gmt":"2020-08-27T20:11:08","slug":"small-businesses-and-the-new-sec-263-repair-regulations","status":"publish","type":"post","link":"https:\/\/evergreensmallbusiness.com\/small-businesses-and-the-new-sec-263-repair-regulations\/","title":{"rendered":"Small Businesses and the New Sec. 263 Repair Regulations"},"content":{"rendered":"

\"Picture<\/a><\/strong>Okay, you may not know this yet. But a 2013 change in the accounting rules for repair and maintenance expenditures (specifically, Treasury Regulation Section 1.263<\/a>) has your poor accountant pulling out his or her hair.<\/p>\n

Accordingly, I\u2019m going to summarize here how the new rules work for small businesses–and then explain in plain language how you and your accountant need to react.<\/p>\n

With a little up-front planning and some attention to detail over the remainder of 2014, the new regulations don\u2019t have to create a huge headache for you. Or jack your taxes.<\/p>\n

The New Repair Regulations in a Nutshell<\/h2>\n

So here\u2019s the new rule (which isn’t very different from the old rule): You can\u2019t simply expense all of your repair and maintenance expenses. No way.<\/p>\n

Rather, you need to capitalize any repair or maintenance expenditures which \u201cbetter\u201d or \u201crestore\u201d a property or asset, as well as any expenditures which adapt an asset or property so it\u2019s again \u201clike new\u201d or can be used for something different.<\/p>\n

Now here\u2019s a quick, practical observation: What the IRS has done with these new regulations is very explicitly say what you and I must do in the future is basically what we should have been doing in the past.<\/p>\n

I mention the preceding awkward point because much of what’s been going on with repair and maintenance deductions is that businesses and investors have simply aggressively deducted amounts.<\/p>\n

In the past, for example, many small businesses and their accountants simply \u201cdeducted first\u201d and then (maybe) \u201casked questions later.\u201d<\/p>\n

Oftentimes, businesses and their accountants rather aggressively set capitalization limits that needed to be exceeded in order for the accountants to worry about capitalizing some expenditure and then depreciating it over time.<\/p>\n

Similarly, repairs and maintenance expenditures were often, well, aggressively written off if someone, somewhere in the accounting process could find a semi-decent rationale for immediately expensing the outlay.<\/p>\n

But now, the rules explicitly say this kind of quick-and-dirty accounting is wrong. The rules say that if you or I want to deduct some expenditure by calling the amount repairs or maintenance, we need to make sure we’re not bettering, restoring or adapting an asset or property.<\/p>\n

To sum up the situation, then, many small businesses and investors probably need to dial down their immediate expensing of repair and maintenance costs.<\/p>\n

But, fortunately, the regulations offer up three safe harbors that should help many small businesses minimize their tax impact.<\/p>\n

De Minimis Safe Harbor<\/h2>\n

So the first safe harbor to know about is the \u201cde minimis safe harbor\u201d which says that as long as you meet three requirements, you’re okay to simply write off your nickel and dime repair or maintenance expenditures.<\/p>\n

Here are the three requirements:<\/p>\n