Materials and Supplies

[RightOn]

Landlord bought $300 of lumbers and $150 of sheetrock for a repair work at his property. He did the work himself.

I think the lumbers and sheetrock are considered materials in this case.

Since the lumbers cost more than $200, it has to be depreciated.

The sheetrock costs less than $200, it has to be expensed.

So we have to depreciate the lumbers and expense the sheetrock in the same job?

[Maribeth]

I think you have costs for repairs in the property. The safe harbor is repairs costs that are less than 2% of unadjusted basis or $10,000, whichever is less. You probably have a repair deduction here, no capitalization.

[RightOn]

Thank you.

I am so confused. Why are the lumbers and the sheetrock not considered materials and supplies?

If you don't mind, can you give me an example of what will be considered materials and supplies?

[Maribeth]

Materials and supplies would be like the packing supplies that a wholesaler would use. Or the fabric that a dressmaker would use.

You have a real estate question here and there were repairs to be made to a rental property. That should fall under the safe harbor for small taxpayers.

If you decided that there were indeed materials & supplies, then you could still deduct them under the safe harbor for repairs, by making an election to include these material & supplies under this de minimis rule.

In my head, and this may not be correct, but in my head, I have segregated the materials & supplies/repairs de minimis as being for businesses. Then real property owners have the safe harbor for small taxpayers that applies only to real property.

[taxea]

This a like any other repair. If you hired someone to do the work the labor would be included on the invoice with materials and supplies that the contractor used. You did the labor so the materials and supplies is the expense for the repair.

[Jiggers]

This could also be called normal maintenance. Something that is done to a unit of property more than once over 10 years. And there is no dollar limitation.

[RightOn]

Materials and supplies would be like the packing supplies that a wholesaler would use. Or the fabric that a dressmaker would use.

So based on the new ruled, if a wholesaler pays more than $200 for tapes in one invoice, those tapes have to be depreciated?

[JON]

Not depreciated

maybwe inventoried!!!!!!!

[Lion]

Can the $500 election be made for this type of thing?

[TaxGuyBill]

If it is classified as a "repair", it is deductible no matter what the cost.

If it is an improvement, "betterment", or "restoration", it is capitalized (depreciated) unless the "unit of property" (probably the entire 'project') is (1) $200 or less, (2) $500 or less if making the 'de minimis' election, (3) qualifies under the $10,000/2% "Safe Harbor For Small Taxpayers With Buildings", or (4) qualifies for the "Routine Maintenance" Safe Harbor (done more than once in 10 years for a building).


If you haven't seen, it this "decision tree" is helpful to determine if something needs to be capitalized or not:

http://www.kbkg.com/nationwide/brochures/KBKG-repairs-decision-tree.pdf