A Tangible Property Regulation (TPR) study provides the property owner and their tax professionals an array of solutions to properly account for their expenditures related to real estate.Â
More specifically, the results from a well-prepared TPR study can ensure that property owners correctly classify the improvement and renovation costs incurred during ownership, distinguishing between those that must be depreciated overtime versus deductible repair and maintenance expenses. The ability to expense certain items provides immediate first-year benefit to decrease taxable income. Â
Equally important is that the TPR Study can also provide a defensible calculation for the Partial Asset Disposition (PAD) which can be implemented by your CPA when preparing tax returns. The PAD relates to assets that have permanently been removed from the property in the current tax year such as, an entire window system for an office building acquired two years ago will still have 37 years of depreciation remaining that can be written off in year of disposition. Â
State bonus depreciation non-conformity:Â Not all states conform to federal bonus depreciation. A TPR study may allow a business to deduct costs immediately for state income tax purposes that would otherwise be capitalized and depreciated.
Assets Not Subject to Recapture Tax: Since the TPR Study will expense items and assets eligible for PAD, these items would not be subject to recapture tax upon the sale of the property.
Periodic review:Â Depending on their CapEx plans, businesses should consider conducting a TPR study periodically to ensure continued compliance with the regulations and to make necessary adjustments based on changes in business operations or tax laws. Studies may need to be every few years or even every quarter.
Prior to an IRS audit: To minimize the risk of issues arising during an IRS audit, it’s a good idea to conduct a TPR study beforehand to ensure compliance with the regulations and identify potential errors or misclassifications.
