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Advisor

$500 repair/capitalization rule

Are you all aware of the recent IRS ruling regarding the capitalization of all equipment repairs  over $500?  I believe it goes into effect this year.  What are your thoughts and what are your accountants/tax preparers telling you?

 

 

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Senior Contributor

Re: $500 repair/capitalization rule

Smoke,

I wasn't aware of this rule. I just got my tax work back from the accountant yesterday. When we were going over stuff a couple weeks ago we commented on how high my repairs were (they always are). Nothing was said about capitalization. The sad part is anything on our depreciation chart gets a personal property tax on it from the state. Kind of like double dipping.

 

I also have found if you take a car or pickup into the dealer for some small "adjustment" you can't get out of there for less than $500. It is the mechanics job to find more things wrong. Of course that limit is blown out of the water if were talking about a tractor!!  Good thing I don't have to buy government wrenches or toilet seats.......

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Advisor

Re: $500 repair/capitalization rule

Either fix it yourself or trade it each year. That's the only logical choices for this situation.

Only the silver spoon boys can give their inheritance away at 100/hour.

I know of 60 something's that can't even take a socket off the ratchet. It's **bleep**ing sad and hilarious, primarily sad. How do you farm that long and not know how to farm? Bankruptcy court I guess.
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Advisor

Re: $500 repair/capitalization rule

I wouldn't worry about it for the 2013 tax year.  It applies to 2014 and later.

 

That said, there has always been the rule for tax purposes that any repair that extends the life of a capital asset beyond its useful life must be capitalized.  It does have a dollar amount fixed to that, but memory escapes me on that.

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Honored Advisor

Re: $500 repair/capitalization rule

That could make for a stressful audit.  Every tire on most western ks tractors is more than $500.

 

I wonder if there could be an opportunity to revalue and extend the life of the asset because of the "upgraded" modification, and adjust its depreciation every time a major (500) upgrade is preformed.  Could be ok.

 

Or will it mean that every tire will now need a manufactuers ID number SN# and a depreciable life?  What a mess when there is a trade made.  Will those 170 depreciating assets that get traded need to be traded for like kind items.

 

And there is the ever thinking farmer out there who will buy a tractor and have it billed piece by piece ----- items bundled in groups over $500 ------- Should get a greater overall depreciation and could 1099 the assembly labor and delivery.

 

Wonder what the depreciable life of a second gear will be? And how it compares to the life of a new grill?

 

might as well laugh -------- I am guessing auditors are looking for help in new regulation.

Good thing we got computers.

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Honored Advisor

Re: $500 repair/capitalization rule

Accountant says -------- bad news.

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Advisor

Re: $500 repair/capitalization rule

There are several ways to do this.  You can total up your repair expenses every month or quarter and capitalize them according to the depreciation appropriate convention rule or, as a CPA farmer friend says he will probably do is total the expenses for the year and capitalize it.  That's the easiest route.

 

 

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Honored Advisor

Re: $500 repair/capitalization rule

That is three years of tough sledding tax wise until it finally averages out.  It will be interesting to see how the depreciable years are determined.  And will the taxpayer have some choice in determining the length of the asset life.

 

It kind of hurts out here in the hot and cold area.  We tend to get a lot of repairs done and caught up in good profit years and put them off when profits are tight.

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Advisor

Re: $500 repair/capitalization rule

There would be limited latitude, based on the tax rules regarding useful iife.  This is all the more reason why we need legislative fixes to overrule the IRS interpretation.

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Honored Advisor

Re: $500 repair/capitalization rule

What we need is a supreme court decision that says "irs interpretations" , fsa policy, etc etc etc  are not legislation or enforceable.

 

People complain about the inaction of congress.  The administration has been going around congress for years by rewriting the intent and application of legislation through the details of "policy" interpretation. 

I am afraid if legislation were written to stop that process we would just get new interpretation.

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