The Internal Revenue Service recently issued temporary regulations, effective Jan. 1, 2012, that provide authoritative guidance on what defines a repair cost as a currently deductible item, or a cost to be capitalized and depreciated over time.
Some of the more significant parts of the temporary regulations include:
- Modifies the DeMinimis Rule. This is only available for taxpayers who have an Applicable Financial Statement (AFS). An AFS is a financial statement that is a certified audit, or is provided to the Securities and Exchange Commission or government agencies.
- Defines materials and supplies as "consumed in operations over 12 months or less." This now includes fuel, lubricants or similar items. Prior guidance related to Materials and Supplies is not changed by the Temporary Regulations.
- Introduces an optional method to deduct rotable and temporary spare parts. The optional method requires more record keeping, but could improve cash flow from the ability to deduct the parts earlier.
- Changes the definition of a "Unit of Property” for dealing with repairs. This is now divided into two categories: buildings and everything else. It introduces a new concept for buildings to make repair measurements using nine defined “building systems." The new Unit of Property rules will require all taxpayers to review assets holdings.
Click here for a detailed article on the new temporary repair regulations.