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I farm in Minnesota and do my own tax work. My question involves the new IRS repair regulations which require us to justify if expenses over $500 are a repair (part of routine maintenance) or if it is a "betterment, restoration or an adaption" to that property.
The only items on my depreciation schedule are pieces of farm equipment and a farm shop built in 2013. There are no building or equipment repair items listed. There have been no "major" repairs such as overhauls to depreciate, so routine repair items have all been deducted on schedule F along with supplies needed. Do I need to file a form 3115 to change accounting methods even if there are no changes? I use the cash method of accounting and deduct maintenance items when I purchase them. Everything I read seems to say the form should be filed even if no adjustments are made, but it seems foolish if I am not changing anything.
To be candid, your judgment on this repair regulation issue has been better than some CPA firms. You are absolutely correct: You do not need to file a Form 3115 to change an accounting method if there are no prior transactions or methods that requires correction. The IRS earlier this month released a Q&A document on its website on these repair regulations, providing some long overdue clarity http://www.irs.gov/….
In that document, they point out that the regulations are based on prior cases and rulings, and most taxpayers, especially small businesses, will not need to make accounting method changes. Further, a small business that does not want to scrutinize pre-2014 transactions for compliance with the new regulations and is willing to accept the risk of IRS exam changes to prior years can simply apply the new regulations prospectively to current transactions in 2014 and after (Rev. Proc. 2015-20).
There are two actions you should consider in your 2014 tax return, if not already filed: (1) Make the de minimis election under Reg. 1.263(a)-1(f) to ensure that all items under $500 can be expensed (this action should occur annually going forward); and (2) Indicate with a statement whether you are or are not following the small business safe harbor approach of applying the Regs. only to 2014 and after under Rev. Proc. 2015-20. (Warning: This decision may require professional help, but my view is that Rev. Proc. 2015-20 generally is not helpful. If the taxpayer later finds an opportunity for correcting a bad pre-2014 depreciation method, the choice presented in Rev. Proc. 2015-20 precludes a later fix which could provide favorable income deferral.)
I read your March column about how to minimize capital gains on a land sale and have a question: A friend has a primary residence and 30 acres farmland/pasture for sale. His wife died four years ago. Does he still get the $500,000 exemption or will it be $250,000? He thinks because her name is still on the deed that it will be $500,000. My question sounds simple, but the answer may not be as simple.