“Capitalization” refers to the concept that one must record an expenditure of funds as an asset. The deduction for this asset comes via depreciation over time.
The IRS has recently issued final regulations that take effect on January 1, 2014 which significantly change the ability of businesses to deduct common repairs and maintenance items and improvements to property.
These new regulations in many cases will now require “capitalization”, when in the past an immediate deduction was typically employed.
There are opportunities for businesses to mitigate some of the new requirements by developing a written accounting policy on what items are capitalized and which are not. The policy needs to be written and in place by January 1, 2014 if the intended flexibility is desired for 2014.
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