CPA & Business Advisory Blog

Real estate remodel

Tangible Property Regulations: Expense it or Capitalize it?

In late 2013, the Internal Revenue Service (IRS) issued regulations regarding the deduction and capitalization of expenditures related to tangible property. These regulations, which took effect Jan. 1, 2014, affect the tax treatment of real estate companies that make acquisitions, upgrades, remodels and repairs. The new rules classify repairs and maintenance in tangible property and provide a framework for determining whether an expenditure is an improvement to property that must be capitalized or a deductible repair expense.

There are some real advantages to real estate companies, primarily in the ability to deduct repair expenditures rather than capitalize and depreciate. Other benefits include the partial disposition of assets. Taxpayers can claim a loss on a disposed component or replace component of a building or any other asset classified as a single unit of property.

Complying with the new regulations will likely require many taxpayers to change their current methods of accounting. Like any program, there are requirements to qualify for current deductions and steps that need to be taken with the filing of your business’ tax return to ensure that the business meets the requirements and claims the deserved deductions.

If you have questions about whether your business qualifies for Tangible Property deductions, please contact Dennis Murphy Jr., CPA at 440-605-7124 or

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2015 Northeast Ohio Real Estate & Construction Survey Report

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