Capitalization & Repairs

The issuance of the Tangible Property Regulations and the guidance regarding Unit of Property provided a significant opportunity to real property owners to deduct large amounts of their annual capital expenditures.  The language in the regulations have a different set of rules than for book purposes, and many times taxpayers miss a large deduction opportunity. The key is to identify the components replaced, compare them to the appropriate unit of property, and evaluate if the expenditure is a restoration, betterment or repair.

 

We, at LaPete Yeates, have extensive experience evaluating companies' capital expenditures and, since 2014, have identified and assisted our clients in claiming significant tax reductions.  Our approach combines the technical understanding of the nuances in the regulations with a comprehensive engineering approach to analyze the building construction.  This approach provides a thorough analysis relying on construction drawings, not interviews, to identify and document what is a "Repair" and not an Improvement for Federal tax purposes.

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In situations involving large numbers of properties, assets or costs, we frequently utilize a sampling or estimation technique to select representative samples on which a "full" cost segregation or repair study can be performed. Statistical sampling not only reduces the cost to our clients on an analysis but can limit the review of the IRS in an examination.  This approach, often referred to as "modeling", is in accordance with Revenue Procedure 2011-42 and permitted by the Internal Revenue Service.