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Why Tangible Property Regulation Studies are Ideal for Multi-Family Properties

Multi-family properties present unique opportunities for investors to maximize returns, not only through rental income but also via tax planning strategies. Among these, conducting tangible property regulation (TPR) studies has proven to be a highly viable and beneficial practice. These studies help property owners navigate complex IRS rules related to capitalization and expensing, enabling them to optimize deductions and improve cash flow.

What Are Tangible Property Regulation Studies?

Tangible property regulation studies involve a detailed analysis of a property’s assets to classify expenditures as either repairs and maintenance (deductible expenses) or capital improvements (depreciated over time). The IRS issued final tangible property regulations in 2013, providing clear guidelines for how property owners should handle expenditures on acquisitions, repairs, and improvements.

For multi-family properties, which often involve frequent repairs and upgrades, these studies are instrumental in identifying immediate deductions that would otherwise go unnoticed.

Why TPR Studies Are Ideal for Multi-Family Properties

High Volume of Repairs and Maintenance

Multi-family properties, by nature, require ongoing maintenance and frequent repairs due to tenant turnover and wear and tear. A TPR study ensures that qualifying expenses can be deducted in the year incurred rather than being capitalized, improving cash flow.

Significant Improvement Projects

Multi-family property owners often undertake large-scale renovations or upgrades, such as replacing roofs, HVAC systems, or flooring. TPR studies can identify components of these projects that qualify for partial asset dispositions or safe harbor deductions.

Compliance with IRS Regulations

The IRS tangible property regulations are complex, and non-compliance can lead to audits or penalties. A TPR study ensures the property owner is following IRS guidelines, minimizing the risk of errors.

Maximizing Depreciation Opportunities

In addition to repair and maintenance deductions, TPR studies often identify opportunities for accelerated depreciation under bonus depreciation rules or cost segregation. These strategies can significantly reduce taxable income in the short term.

Key Benefits of TPR Studies for Multi-Family Properties

Immediate Tax Savings

By classifying more expenses as deductible repairs, property owners can reduce their taxable income, resulting in immediate tax savings.

Improved Cash Flow

The ability to deduct expenses immediately, rather than spreading them out over multiple years, improves cash flow, enabling property owners to reinvest in their properties or expand their portfolios.

Better Asset Management

A TPR study provides a comprehensive inventory of a property’s components and their respective values. This allows owners to make informed decisions about when to repair, replace, or dispose of assets.

Audit Protection

TPR studies are conducted by tax professionals who document compliance with IRS guidelines. This documentation provides protection in the event of an audit, ensuring property owners have the necessary evidence to support their tax positions.

How to Implement a TPR Study

Engage a Qualified Tax Professional  
Work with a tax professional experienced in tangible property regulations and real estate. They will have the expertise to identify and document eligible deductions properly.

Conduct a Detailed Asset Review
A thorough review of the property’s assets and past expenditures is essential. This includes analyzing repair and maintenance records, improvement projects, and replacement schedules.

Classify Expenditures
Use the IRS tangible property regulation guidelines to classify expenses into deductible repairs, capital improvements, or partial asset dispositions. 

Prepare and File Adjustments
If necessary, file Form 3115 (Application for Change in Accounting Method) to adopt the appropriate accounting treatment for tangible property expenditures retroactively.

Establish Ongoing Processes
Implement systems to track and classify future expenditures accurately, ensuring ongoing compliance and optimization of tax benefits.

For multi-family property owners, tangible property regulation studies are not just an option—they are an essential tool for maximizing tax efficiency. These studies provide immediate tax savings, improve cash flow, and ensure compliance with IRS regulations. By engaging qualified professionals and conducting detailed asset reviews, property owners can unlock significant financial benefits, allowing them to reinvest in their properties and achieve long-term success in the competitive real estate market.

If you own a multi-family property and haven’t explored the advantages of TPR studies, now is the time to act. The savings and strategic insights gained from these studies can make a meaningful impact on your bottom line.

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