Revolving line of credit for major purchases

[Jesse]

On the weekly payments of purchases of small tools - I have always thought it was treated as any other Vendor Card such as Staples (Specific Business Supply Acct) - you can't use the charge for write off, have to use the payments - unlike the charges on Bank Cards (Visa/MC, etc), which can be deducted when charged and not paid.

On the finance contract for large items - I usually treat as any other finance purchase agreement - depreciating the purchase and deducting the interest according to an amortization schedule.

Hope this helps, maybe I have been doing it wrong

Sandy

When it comes to mechanics. almost every item they buy is $100 or more and has a useful life of more than 1 year. These items are not operating expenses. So in the case of Jesse's question, paid or unpaid shouldn't matter because "Placed in Service" should prevail to allow the deduction through depreciation.

At this point I think I am going to let the "placed in service" prevail and treat the larger items as a purchase agreement as ST suggests.

If on 07/01/11 a roll-away tool box that costs over $8,000 with a 4 year contract is purchased, I would think the placed in service date of July 2011 would need to be used for the full amount. What other option is there?

[BOB W]

At this point I think I am going to let the "placed in service" prevail and treat the larger items as a purchase agreement as ST suggests.

If on 07/01/11 a roll-away tool box that costs over $8,000 with a 4 year contract is purchased, I would think the placed in service date of July 2011 would need to be used for the full amount. What other option is there?

There are no other options, you are on the the right tract now........

[oceanlovin'ea]

Home Depot card

I would think that the purchase of the tools that you are speaking of would be like a Home Depot credit card. When you charge on a Home Depot credit card, the store is extending the credit to you. They do not receive their money until you pay them.
With a MC, Visa, Discover, AMEX, the store receives their money from MC, Visa, Discover, or AMEX and they are out of the equation. Now you owe the credit card company and your payments go to them.
If these tool companies set up a credit account with the mechanics, it would appear to be the same as HD or Lowes. You can't write off the amount of tools they have bought but you can write off their payments. I would think they would need to keep detailed records of what they buy.

Linda, EA

[dtlee]

I would think that the purchase of the tools that you are speaking of would be like a Home Depot credit card. When you charge on a Home Depot credit card, the store is extending the credit to you. They do not receive their money until you pay them.

Please explain where you are getting this information.

My understanding is that like many other companies, Home Depot no longer extends credit themselves. Everything I have read indicates that all Home Depot Credit Cards are store branded cards provided by Citibank. Citibank approves the borrower. Citibank provides the financing. Citibank bills the customer. Citibank pays Home Depot.

Click on any of the financing options here and you will see that you are dealing with Citibank for your financing:

http://www.homedepot.com/webapp/wcs/stores/servlet/ContentView?pn=Credit_Center&langId=-1&storeId=10051&catalogId=10053

As for Lowes, click any credit option and you will see that financing is provided by GE Capital Retail Bank:

http://www.lowes.com/cd_Lowes+Consumer+Credit+Center_739786611_

[oceanlovin'ea]

oh, really. I didn't know that. I have a very happy client that will be glad to know that and I will have to amend his tax return.

I don't know when Home Depot changed their method but I am glad to know they did.

Linda, EA

[Jesse]

I would think that the purchase of the tools that you are speaking of would be like a Home Depot credit card. When you charge on a Home Depot credit card, the store is extending the credit to you. They do not receive their money until you pay them.
With a MC, Visa, Discover, AMEX, the store receives their money from MC, Visa, Discover, or AMEX and they are out of the equation. Now you owe the credit card company and your payments go to them.
If these tool companies set up a credit account with the mechanics, it would appear to be the same as HD or Lowes. You can't write off the amount of tools they have bought but you can write off their payments. I would think they would need to keep detailed records of what they buy.

Linda, EA

How did you write off the payments?

If the $8,000 toolbox is paid for over 4 years you would have interest each year, but how would you deduct the principal portion of the payments for a depreciable asset placed in service in a prior year?

[BOB W]

How did you write off the payments?

If the $8,000 toolbox is paid for over 4 years you would have interest each year, but how would you deduct the principal portion of the payments for a depreciable asset placed in service in a prior year?

You now bring up the issue of "Imputed Interest". When no interest is stated you must reduce the principle by an interest rate factor.

Maybe I'm jumping the issues here but this needs to be addressed sooner or later, if no interest is stated.

[oceanlovin'ea]

Last year was the first year I did this return so I am trying to remember. I don't think he bought any depreciable items. It was stuff for repairs. So we wrote off what he paid on the account. That would include interest which should have been listed separately.

I think he did purchase a couple of stoves but I told him he couldn't write them off last year. That is why I need to amend the return.

Linda, EA