The Various Buckets of Depreciation: A Review of Current Rules & Changes

Tax depreciation rules can be complex, but developing a better understanding of them can yield significant tax savings for contractors. This article provides an overview of current depreciation rules as well as recent changes that both increase options to accelerate depreciation deductions and phase out some favorable opportunities. Repair Regulations The first step in this process is to minimize capital assets by expensing all items now permissible under the recent repair regulations. In 2013, the IRS released final regulations for tangible property costs (equipment, property, and other fixed assets), commonly known as the “repair regs.”1 Generally, the IRS requires most tangible property costs be capitalized and depreciated over several years rather than deducting the full amount in the current year. The repair regs provide the opportunity to immediately deduct certain items that would have previously been capitalized, like small tools and supplies, up to $2,500.2 Companies with an applicable financial statement (AFS) for the year – that is, an audited… read more →