IRS removes associated property rule in final interest capitalization regulations

The IRS on Wednesday issued final regulations (T.D. 10034) that remove the associated property rule and similar rules from regulations under Sec. 263A(f) regarding interest capitalization requirements for improvements constituting designated property.

The final regulations also modify the definition of “improvement” as it applies to the existing regulations, and, because of the removal of the associated property rule, they modify other rules.

The IRS issued proposed regulations (REG-133850-13) in May 2024 and issued corrected regulations in July 2024. The final regulations make what the IRS described as “minor, clarifying changes” to those proposed regulations to clarify the scope of improvements that constitute the “production of property” for purposes of determining whether any such improvement is designated property under Regs. Sec. 1.263A-8.

The final regulations affect taxpayers improving real or tangible personal property that constitute the production of designated property.

The IRS adopted the final regulations after receiving one comment in support of REG-133850-13 and one that did not address the proposed regulations. No public hearing was requested or held on the proposed regulations.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.