Re-printed with permission by author: Craig Miller, CPA, CGFM, MBA, Duffy+Duffy Cost Segregation Services, Inc.
The recently released Rev. Proc. 2016-29 details new procedures for automatic accounting method changes and effectively provides a one year extension for taxpayers to implement many portions of the Tangible Property Regulations (TPR).
The TPR provide rules to determine whether an amount paid for during the life of tangible property is deductible or must be capitalized. Also, these regulations provide guidance for dispositions of tangible property. Specifically, the TPR provides rules covering five basic areas:
1. Materials and supplies;
2. Capitalized costs (including the de minimis safe-harbor election);
3. Costs to acquire or produce tangible property;
4. Costs to improve tangible property;
5. Dispositions of modified accelerated cost-recovery system (MACRS) property and general asset accounts (GAA).
Taxpayers are generally not permitted to make an automatic method change if they made a change for the same item within the previous five tax years. The "5-year rule" was waived under Rev. Proc. 2015-13 for implementing TPR changes for any tax year beginning before January 1, 2015. This gave taxpayers (who may have early adopted the Temporary Regulations) the ability to unwind or correct previous TPR related accounting method changes. Rev. Proc. 2016-29 further extends this waiver to any tax year beginning before January 1, 2016, effectively providing a one year extension to comply with the TPR.
It is important to note that Late Partial Dispositions (DCN #196) are not affected by the 5-year rule waiver since this automatic accounting method change is not allowed for tax years beginning on or after January 1, 2015.
Craig Miller is president of Duffy + Duffy, Cost Segregation Services, Inc. Duffy + Duffy is one of the leading Cost Segregation firms in the industry – performing studies based on case law and IRS guidance using CPA’s, and construction engineers and estimators. Cost Segregation allows commercial building owners to generate cash flow by accelerating depreciation deductions on their buildings and deferring taxes. For more information, contact Craig Miller, CPA, CGFM, MBA at 440-892-3339, or visit CostSegExperts.com.