A thorough review of your company’s current capitalization policies and practices can yield a significant opportunity to drive cash tax savings.
PINNACLE’s Repair Review focuses on the treatment of costs capitalized as improvements, as well as reviewing the recovery period and methodology of capitalized assets, will often lead to opportunities to recover missed deductions such as repairs and maintenance expenses, increase depreciation deductions not claimed in prior years, and potentially reduce state tax liability associated with certain assets.
Many companies have capitalized as assets common repair and maintenance expenses, which are generally deductible. These changes generally accelerate incidental repairs that were capitalized and depreciated over a long recovery period such as 39 years to a current deduction. For example, retail companies often capitalize costs to repair, refresh and maintain store locations. Under Section 162, taxpayers may deduct certain costs incurred to repair and maintain locations, rather than capitalizing and recovering costs through depreciation.
Currently under existing law, the repairs and maintenance opportunity relates to all years – past and present. This opportunity may change once the IRS has finalized the proposed tangible regulations later this year.
Companies should act quickly to consider the opportunity to change their treatment in prior years under a method change.