ATX software question - Elections

[Marie]

where is the safe harbor election? is there one for $200 and one for $500? how is this done?

[mcb39]

Which safe harbor are you talking about?  The one for OIH or the one for ACA?

[jklcpa]

I thought Marie was asking about the repair reg/capitalization elections.

[Marie]

yes, the repair reg/cap election, sorry I wasn't specific enough.

[Lynn EA USTCP in Louisiana]

Ask for the form "Elections'.  Once that loads, look at the tabs along the bottom of the page and choose depreciation.  The safe harbor elections are near the bottom of the depreciation page.

[Marie]

I FOUND THOSE, BUT HOW DO I DISTINGUISH BETWEEN $200 SAFE HARBOR AND $500 SAFE HARBOR?

[kcjenkins]

$200 is §1.263(a)-1(f).

$500 is §1.263 (a)-3(h)

Edited January 28, 2015 by kcjenkins
Correction to the §

[Marie]

thank you

[Marie]

WHERE IS THE $500 ONE, I HAVE ONLY FOUND THE $200 ONE

[kcjenkins]

It is the very last choice.

[TAXMAN]

Question? if you make this election are you still required to file 3115 if there are no 481 adjustments?

[Lynn EA USTCP in Louisiana]

My sources tell me 'yes' - list change # 184

[grandmabee]

If this is a new rental or business starting in 2014 then we don't have to file the 3115 because it new correct?  Just do the elections?  TIA

[Lion EA]

Yes.  If they were not in business, then they don't have an accounting method until they start in business.  So, you have a chance to start them out under the new repair regs.

 

Would also apply to a 2013 return just being filed now as new repair regs could be used for 2013, I think.

 

Annual elections.

Edited February 4, 2015 by Lion EA

[Richcpaman]

There were three possible elections.  This is what ends up as the election:

 

IRC 1-263(a)-1(f)(i-ii)  is the De Minimis Safe Harbor to expense costs of Acquired Property.  Ok, makes sense.  This is the $200 one...

 

IRC 1-263(a)-3(h) Safe Harbor Election for Small Taxpayers: This election to *NOT* apply the improvement rules to the following properties:  So we have to list the properties...

 

IRC 1-263(a)-3(n) Capitalize Repair and Maintenance Costs:  This is the $500 election.  But it says the taxpayer "elects to capitalize repair and maintenance costs".   Meaning, if it is over $500, it needs to be on the Deprec Schedule.   Well, that works for the feds as long as S179 is at $200k a year, but many states only allow under the old rules, (I.E: $25k...)  So you get stuck on the state, and if you make the election, you are setting yourself up to fight the IRS when ever you don't capitalize a normal "repair". 

 

Am I Right in thinking this?

 

Rich

[SaraEA]

My understanding is that the $200 and $500 choices are ELECTIONS, made EACH year on the tax return (or not made).  They do not involve a change of accounting method, so no 3115 required.  (Unless the taxpayer chooses to make the election retroactively for 2012.) Accounting method changes involve things like replacing a roof on a building, when the original asset was simply the whole building, roof and all.  Now you have to separate that roof from the structure and add the new one.  This is definitely a change of accounting methods.

[Abby Normal]

I thought 1.263(a)-1(f)(i-ii) is the $500 minimum capitalization election for assets

 

and

 

the 1.263(a)-3(h) is the 2% or 10K election for rental properties.

[Abby Normal]

(ii) Taxpayer without applicable financial statement. A taxpayer electing to apply the de minimis safe harbor may not capitalize under § 1.263(a)-2(d)(1) or § 1.263(a)-3(d) nor treat as a material or supply under § 1.162-3(a) any amount paid in the taxable year for property described in paragraph (f)(1) of this section if—

(A) The taxpayer does not have an applicable financial statement (as defined in paragraph (f)(4) of this section);

(B The taxpayer has at the beginning of the taxable year accounting procedures treating as an expense for non-tax purposes—

(1) Amounts paid for property costing less than a specified dollar amount; or

(2) Amounts paid for property with an economic useful life (as defined in § 1.162-3©(3)) of 12 months or less;

© The taxpayer treats the amount paid for the property as an expense on its books and records in accordance with these accounting procedures; and

(D) The amount paid for the property does not exceed $500 per invoice (or per item as substantiated by the invoice) or other amount as identified in published guidance in the Federal Register or in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter).

Edited February 5, 2015 by jmdaviscpa

[Abby Normal]

(h) Safe harbor for small taxpayers—

(1) In general. A qualifying taxpayer (as defined in paragraph (h)(3) of this section) may elect to not apply paragraph (d) or paragraph (f) of this section to an eligible building property (as defined in paragraph (h)(4) of this section) if the total amount paid during the taxable year for repairs, maintenance, improvements, and similar activities performed on the eligible building property does not exceed the lesser of—

(i) 2 percent of the unadjusted basis (as defined under paragraph (h)(5) of this section) of the eligible building property; or

(ii) $10,000.

[grmy2h]

In a webinar this morning they said...

 

Common elections without 3115

1. De Minimus Safe Harbor for otherwise capitalized expense.

2. Safe Harbor for qualifiying buildings

3. Capitalize repairs and maintenance

 

Common 3115 changes in Accounting Method

1. Compliance with overall Regs (designated change # 184)

2. Disposal of  UoP (#196)

3. Materials and Supplies Election (#186)

 

Changes by Implementation

1. Materials and Supplies (100 vs 200)

2. Rotable and Temporary Parts

3. Forward looking Partial Distributions

 

I don't begin to understand it all...

Edited February 5, 2015 by grmy2h

[Lion EA]

OK, I've taken myself around in a complete circle.  Is it $200 OR $500?  $200 AND $500?  Or is one materials/supplies vs. capitalization and the other something else entirely?  And, which election section is which?  I'm getting more confused the more I read.

[msbaysalr]

I am not sure that just making an election takes care of the problem.  From what I am reading you NEED to do a 3115 for every C, F and E just to protect yourself.

I see 3115 as a no win situation.....I think all of us should be putting post up on every board for preparers and taxpayers to be contacting their congressmen to put a stop to this insane rule.  Are you trying to explain this to your client that hardly knows what the difference between an expense or a capital improvement.  With rules like this you are hardly encouraging people to go into business.  I for one do not want to be slapped with a $500 penalty and if you don't do the 3115 or do itcorrectly it could be multiple penalties!  I can see regulations for guidelines for repairs and capitalization but this is CRAZY!

[Richcpaman]

MS:

 

I agree with you.

 

I believe the initial "professional" reaction was an OVER-reaction.  And that is the one that every Sch C, E and F needs it own 3115, every year.

 

As time passed, and more folks looked at it, I believe for the majority of our clients, the ones who have a Sch C or a couple of rentals, we have been sorta following many of the things found in the Rev-Proc, notwithstanding that we also just Section 179 most everything anyway...

 

Most of us *here* are not performing audits, or doing them for public companies.  That is a different world, and that is where the initial reaction came from.

 

I am adding the two elections to each return.  I will not do a 3115 unless there is something particular to that client that appears to demand it.

 

Just my 2 cents.

 

The IRS, in all its infinite wisdom, I believe, is running out of fingers to stick into the dike.  And this Rev-Proc is just another one of the pieces of the dam breaking. 

 

Rich

[DougO]

The $200 and $500 amounts both apply to the "De Minimis Safe Harbor Election" and that is the 1.263(a)-1(f)(i-ii) one.   They both fall under the same code section so there are not separate elections.  Your accounting policy could have both amounts or not.   They are annual and do not require a 3115.     The "Small Taxpayer Safe Harbor" is the 1.263(a)-3(h) and that applies to eligible building property whether owned or rented. 

 

The Form 3115 requirement comes in relation to the new definition of "units of property" and various other new descriptions in the regulations.  So even if you feel, as I generally do, that my clients are not actually making a change in the way they account for all of these costs; it seems you still need to file for a change since these items or terms did not previously exist in the Code so going forward you need to adopt them to protect yourself and your clients.

 

Just a lot of effort to kill some trees, paper your and the IRS files, and generally drive everyone crazy during the coming months.       Thanks IRS !!!

[Lee B]

MS:

 

I agree with you.

 

I believe the initial "professional" reaction was an OVER-reaction.  And that is the one that every Sch C, E and F needs it own 3115, every year.

 

As time passed, and more folks looked at it, I believe for the majority of our clients, the ones who have a Sch C or a couple of rentals, we have been sorta following many of the things found in the Rev-Proc, notwithstanding that we also just Section 179 most everything anyway...

 

Most of us *here* are not performing audits, or doing them for public companies.  That is a different world, and that is where the initial reaction came from.

 

I am adding the two elections to each return.  I will not do a 3115 unless there is something particular to that client that appears to demand it.

 

Just my 2 cents.

 

The IRS, in all its infinite wisdom, I believe, is running out of fingers to stick into the dike.  And this Rev-Proc is just another one of the pieces of the dam breaking. 

 

Rich

Rich,

 

I totally agree with you. The evolution of these Regs have been ongoing since 2006, and proposed Regs

 

were issued well in advance. The Regs that were issued last month were attempts to fine tune the Regs that

 

have been out there for over a year.  What the IRS didn't do was get out in front and make clear their

 

expectations. At the class that I attended several weeks ago the presenter/coauthor, who is a National Tax

 

Partner for CliftonLarsonAllen, the 10th largesr CPA Firm in the country, said that a upper level IRS

 

employee, who was involved in the area told him that the IRS expected very few 3115 s to be filed

 

for small businesses.

Edited February 7, 2015 by cbslee