From the March 2012 issue of Treasury & Risk magazine

New Repair Rules

The IRS makes it easier for companies to take losses on building components they have replaced.

The Internal Revenue Service and businesses have long contested the line that divides spending on repairs, which companies can deduct on that year’s tax return, and spending on improvements, which must be capitalized and depreciated over time. The IRS has come out with a new set of “repair regulations” that make significant changes in how companies should treat such expenditures for tax purposes.

The changes pose a compliance challenge, with a KPMG survey of 1,900 corporate tax executives showing 42% expect the revised regulations will be harder to administer. In the long run, though, companies could benefit because the rules may make it easier for them to take losses on building components they have replaced.

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