New tax update may prove advantageous for dealers

June 17, 2014

In a recent blog post, CliftonLarsonAllen (CLA) notes dealerships that made “mandatory image upgrades in recent years (or plan to in the future) may be eligible for tax savings, thanks to recently released IRS regulations.”

According to CLA, new ruling allows certain expenditures to be deducted as an expense rather than capitalized as an asset.

“When packaged with energy tax credits and cost segregation methods, the tax savings can be significantly beneficial for many dealerships,ˮ says Sam McKay, a dealership manager with CliftonLarsonAllen. “In many cases the IRS allows you to go back and re-cast previously capitalized assets as now eligible for expensing without amending returns.”

RELATED: CLA produces letter offering tips on handling tangible property.

CLA says the regulations are key because they distinguish between the amounts paid to acquire or produce tangible property, and the amounts paid to improve an existing property. Taxpaxers must always capitalize amounts paid to acquire or produce tangible property, CLA says, unless the property:

  • Qualifies as deductible materials and supplies
  • Qualifies under the de minimis safe harbor and conforms to the taxpayer’s safe harbor election
  • Qualifies as an eligible repair deduction

CLA also notes “for improvements to property, capitalization is required if the expenditure is a betterment, restoration, or adaptation of the unit of property.”

For more information on the IRS update, check out CLA’s blog post.

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