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New Repair Regulations Revisited

Picture of Heather Palermo Heather Palermo · December 18, 2014

small business accounting tax strategy business strategy

Now that the year is coming to an end, we would like to revisit the new repair regulations. The IRS has decided that we need to determine whether to capitalize a repair over a certain length of time, or expense it when occurred. They established a safe harbor limit of $500, meaning that any repairs under $500 will be expensed when occurred. For repairs over $500, we need to determine some information:

Is it regular and expected? For example, you expect to replace tires several times throughout a vehicle’s life.
Does it improve the asset? Replacing a major component in your HVAC system that improves its efficiency would be considered an improvement and must be capitalized.
Does it extend the life of the asset?
Does it restore the asset to a state that is greater than what it was the last time the repair was made?

When making repair expenditures over $500, please consult us about the repair, and be prepared to answer the questions above so we can determine the appropriate treatment of the repair.

Your Payroll Department (YPD) is part of the Kaizen CPAs family. YPD specializes in payroll and HR compliance for small businesses, providing the hands-on support to get your people paid and stay compliant without having to become an expert yourself.

The information in this article is provided for general educational purposes and reflects conditions as of the publication date. It does not constitute legal, tax, or compliance advice. For guidance specific to your business, consult a qualified professional.