Tires, Maintenance, repair or depreciate ???

[ljwalters]

Total bill was for $4291. Tires and rear end for a dump truck.  The rear end was replaced.  Doubt it was a new one due to age. Do I need to get actual bill and separate, do they both need to be depreciated. and how do I expense off the old rear end of the truck. ?????????????

 

 

[Jack from Ohio]

Repairs.  This one is a no-brainer.

[jklcpa]

 
I don't know about it being a no-brainer.  I bet everyone here would say that logically this should be a repair, including me, but the new repair regs might say that this should be capitalized. You'll have to decide whether or not the new rear significantly adds to the life and value of the dump truck.  I'd think if it was a used rear as the OP suspects, then one might conclude that it doesn't add value or life, but merely puts it back to its operating condition as before.  I don't know how one would go about portioning out the old rear though, or maybe we aren't supposed to.  I hate these new laws, really hate them. 
 
Here's an article that appeared in the Journal of Accountancy that uses the example of rebuilding an engine, and that the repair regs require its capitalization.  

 

This is from the bottom of page one of that article that says:

Restated, expenditures that restore the property to its operating state are a deductible repair. However, expenditures that provide a more permanent increment in longevity, utility, or worth of the property are more likely capital. For example, if a taxpayer rebuilds a business vehicle’s engine, the IRS generally considers those expenditures to be capital. In the IRS’s view, rebuilding an engine increases the value of the vehicle (the unit of property) and prolongs its economic useful life. By comparison, the IRS views regularly scheduled maintenance repairs on a business vehicle currently deductible, as they do not materially increase the vehicle’s value or appreciably prolong its useful life.

 

Edited April 30, 2015 by jklcpa
added link to article instead of pdf upload

[Jack from Ohio]

The rear differential of a truck is NOT a separate unit by any standard.

 

Repairs.  All of it.  I think the 3115 fear has intoxicated people's brains!!  Nit picking OCD overload here!!

 

I was an ASE Certified Master Auto/Truck technician for 30 years before taking on tax preparation full time.

 

No one that has ever actually been in the industry would ever consider this NOT a repair.

 

REPAIR and MAINTENANCE!!  Nothing else.

 

Another thought, opinions by another accountant or agency have no bearing on the actual regs.  I stand by my position.

Edited April 2, 2015 by Jack from Ohio

[Terry D EA]

I don't know if I completely agree Jack and I do understand your position cause I too am a current ASE Master Certified Technician with other ASE certificates as well. so, here is my take:

 

1. The repair of the rear differential did restore the vehicle to it's original operating state.

2. The repair did extend it's useful life.

3. The repair did not add additional worth. Simply put you won't sell it for more because the rear diff was replaced.

 

I think this still deserves some consideration both ways. Two out of three tells me capitalize. Initially I too would jump to the repair, but,  does this client have an audited financial statement to where the repair would fall under 5,000.00 per ticket? If not, then no choice but to capitalize. I

[Jack from Ohio]

I don't know if I completely agree Jack and I do understand your position cause I too am a current ASE Master Certified Technician with other ASE certificates as well. so, here is my take:

 

1. The repair of the rear differential did restore the vehicle to it's original operating state.

2. The repair did extend it's useful life.

3. The repair did not add additional worth. Simply put you won't sell it for more because the rear diff was replaced.

 

I think this still deserves some consideration both ways. Two out of three tells me capitalize. Initially I too would jump to the repair, but,  does this client have an audited financial statement to where the repair would fall under 5,000.00 per ticket? If not, then no choice but to capitalize. I

Nope.  Repair.  Way too much over thinking going on here!!  Natural sense (used to be called common sense, but it is no longer common) seems to disappear when the 3115 "monster" gets in someone's brain.

 

So in the vein of thought taking #1 & #2, any oil change, tires, battery, belts, hoses, fluid change, brakes etc should be amortized?  Those all restore to original operating state, and all extend it's useful life.

 

I am growing weary of how preparers are losing their minds about the new repair regs.

Edited April 2, 2015 by Jack from Ohio

[BulldogTom]

Nope.  Repair.  Way too much over thinking going on here!!  Natural sense (used to be called common sense, but it is no longer common) seems to disappear when the 3115 "monster" gets in someone's brain.

 

So in the vein of thought taking #1 & #2, any oil change, tires, battery, belts, hoses, fluid change, brakes etc should be amortized?  Those all restore to original operating state, and all extend it's useful life.

 

I am growing weary of how preparers are losing their minds about the new repair regs.

I tend to agree with Jack, although I do believe this is a new era of regulation and it needs to be discussed and thought through.

 

My first reaction was - TIRES! no brainer, repair.  Then I thought about the differential, and not being a master mechanic and putting my IRS idiot hat on, I thought, what would an idiot IRS agent who is overworked and under appreciated and certainly has no interest in getting it right say?  Obviously, the IRS guy is going to say Capitalize because it makes the tax bill larger. 

 

But I still think it is a repair.  And I think it would be a winner at the higher levels of audit.  But it would probably go to appeals before it got looked at by anyone who would take a reasonable position.

 

This is where I miss Jainen.  He would give us the IRS position.

 

Tom

Newark, CA

[jasdlm]

Where is Jainen?  I miss him, too.

[jklcpa]

Where is Jainen?  I miss him, too.

 

 

 

Did you know that you can point at anyone's name and see the last time that person was logged on?  Jainen's says he was here on the evening of 3/29.

[Pacun]

I don't know if I completely agree Jack and I do understand your position cause I too am a current ASE Master Certified Technician with other ASE certificates as well. so, here is my take:

 

1. The repair of the rear differential did restore the vehicle to it's original operating state.

2. The repair did extend it's useful life.

3. The repair did not add additional worth. Simply put you won't sell it for more because the rear diff was replaced.

 

I think this still deserves some consideration both ways. Two out of three tells me capitalize. Initially I too would jump to the repair, but,  does this client have an audited financial statement to where the repair would fall under 5,000.00 per ticket? If not, then no choice but to capitalize. I

 

If you are going to say they are no repairs, please don't start your sentences with "The repair". Repairs never extend the useful life.

 

So changing the rear of a truck makes its engine to have extended life?

 

I agree with Jack, except that I would not put it so strongly.

Edited April 2, 2015 by Pacun

[OldJack]

This Jack agrees with that Jack!  Repairs.  Come on you guys, who pays your fee and who do you work for?  If in doubt give the doubt to the taxpayer as you can always give it to the IRS on audit if you have too. Geezz!!

[jklcpa]

Nope.  Repair.  Way too much over thinking going on here!!  Natural sense (used to be called common sense, but it is no longer common) seems to disappear when the 3115 "monster" gets in someone's brain.

 

So in the vein of thought taking #1 & #2, any oil change, tires, battery, belts, hoses, fluid change, brakes etc should be amortized?  Those all restore to original operating state, and all extend it's useful life.

 

I am growing weary of how preparers are losing their minds about the new repair regs.

 

First, tax law isn't always logical and the tax laws don't always make "sense" because sometimes those laws have come into existence because of who had the most money to influence the legislation.

 

Next, maybe you need to take the repair regs a little more seriously and actually read them, because if you had read them, you'd know that your statement about capitalizing those normal maintenance items such as oil changes, tires, batteries, belts, hoses, etc is totally off the wall.  Those are still to be expenses as normal R&M.

 

No one here is losing their mind. We are forced to think of these types of expenditures in ways that are different than in the past.  I think you missed the part where in my very first sentence I agreed that the rear replacement would probably be a repair.

 

 

Another thought, opinions by another accountant or agency have no bearing on the actual regs.  I stand by my position.

 

Oh, and by the way, the article from the JoA was written by a J.D. that directly referenced T.D 9636 (IRB 2013-43) that contains the IRS' own "view" of what constitutes a routine maintenance-type expenditure to keep tangible property or a UOP in an efficient operating condition. It wasn't just someone's opinion.  lol

[Jack from Ohio]

First, tax law isn't always logical and the tax laws don't always make "sense" because sometimes those laws have come into existence because of who had the most money to influence the legislation.

 

Next, maybe you need to take the repair regs a little more seriously and actually read them, because if you had read them, you'd know that your statement about capitalizing those normal maintenance items such as oil changes, tires, batteries, belts, hoses, etc is totally off the wall.  Those are still to be expenses as normal R&M.

 

No one here is losing their mind. We are forced to think of these types of expenditures in ways that are different than in the past.  I think you missed the part where in my very first sentence I agreed that the rear replacement would probably be a repair.

 

 

Oh, and by the way, the article from the JoA was written by a J.D. that directly referenced T.D 9636 (IRB 2013-43) that contains the IRS' own "view" of what constitutes a routine maintenance-type expenditure to keep tangible property or a UOP in an efficient operating condition. It wasn't just someone's opinion.  lol

It is still repairs.

[Jack from Ohio]

It is still repairs.

Took me 30 seconds to make that call after I read the OP.

[kcjenkins]

Repair, even under the new reg.  It did not restore the vehicle to it's original operating state, just into operational state.  

The repair did extend it's useful life, since without it the useful life was zero.  And finally, it did not add significant additional worth. It won't sell for much more because the rear diff was replaced, it's still an old truck.  

[Terry D EA]

If you are going to say they are no repairs, please don't start your sentences with "The repair". Repairs never extend the useful life.

 

So changing the rear of a truck makes its engine to have extended life?

 

I agree with Jack, except that I would not put it so strongly.

Pacun you totally missed my point. The procedure to replace a rear differential is definitely a "repair procedure". In this case the actual rear differential was not "repaired" it was "replaced" which is a separate unit and if we want to split hairs here there maybe a need to have an itemized statement to properly allocate the expenses so let's not play word games. Yes, the "replacement" of the rear differential extended the vehicle's useful life simply because if it wasn't "replaced" or "repaired" the vehicle had no useful life past the date of failure.

 

I too would agree that first thought was repair and expense the total. However, and I will stick by what I said, the first two criteria makes me think capitalize the cost of the rear differential and labor to install it and expense the rest. Tires are maintenance and along with other items of maintenance should be expensed. From reading the posts related to this discussion those of us who are being careful with this have not lost our minds and are not over thinking it. Read the new regs more than once and each time you do, you won't come away feeling less confused.

[ljwalters]

This is why I quit. 

The truck is a 1980 purchased in 2004 for $5100.  And totally depreciated. So it is now 35 years old hell they kept it running longer than a house. 

[Jack from Ohio]

Repairs.  This one is a no-brainer.

[Jeff Linderer, CPA]

- 4 - Accordingly, truck, trailer, and tractor tires are not treated as part of the vehicle for depreciation purposes. Rather, these tires are considered to be separate assets and, as such, their cost is currently deductible by a taxpayer provided they are consumable in less than one year. However, the cost of truck, trailer, and tractor tires with an average useful life to a taxpayer of more than one year cannot be currently deducted as an operating expense. Their cost must be capitalized and recovered through depreciation. Because truck, trailer, and tractor tires are not considered part of the vehicle for depreciation purposes, they are not associated with any of the specific transportation assets included in the specific asset classes of Rev. Proc. 87-56 (that is, asset classes 00.241, 00.242, 00.26, and 00.27). Therefore, in accordance with 168 and Rev. Proc. 87-56, all truck, trailer, and tractor tires that must be capitalized, whether original or replacement, are depreciated as assets used in specific business activities (that is, asset classes 01.1 through 80.0 of Rev. Proc. 87-56). For example, if a taxpayer's business activity is described in asset class 42.0, Motor Transport--Freight, original and replacement truck, trailer, and tractor tires, like the other assets in this class, would have a 5-year recovery period for GDS purposes and an 8-year recovery period for ADS purposes.

Perhaps, reading section 4 of this revenue proc. might affect your answers?

[jklcpa]

21 minutes ago, Jeff Linderer, CPA said:

Perhaps, reading section 4 of this revenue proc. might affect your answers?

Did you realize this topic is almost 5 years old?

[thinks too much]

The post may be 5 years old, but it is clearly relevant to Newbie, and apparently myself -- as I have a client for whom I would WANT to capitalize his large truck tires/repairs this year . He has little income this year as he is just starting out. Also, in his case his repairs were done within months, perhaps up to one year after purchase, so was actually improving over condition purchased - repairs = 50% purchase price.

 

[jklcpa]

2 hours ago, thinks too much said:

The post may be 5 years old, but it is clearly relevant to Newbie, and apparently myself -- as I have a client for whom I would WANT to capitalize his large truck tires/repairs this year . He has little income this year as he is just starting out. Also, in his case his repairs were done within months, perhaps up to one year after purchase, so was actually improving over condition purchased - repairs = 50% purchase price.

Well, you apparently found the post by searching the forum and have possibly drawn some conclusion as to a suggested course of action for your client's particular situation, but you have again revived this 5 year old topic with members that are no longer participating, with answers given for an exact fact pattern that is different that yours.  Additionally, while it may not have affected the exact answers given to the original post, the repair regs were fairly new at the time, assuming it was for either a 2014 return or 2015 projection at a time when the de minimus threshold was set at only $500, and that the new higher threshold of $2,500 per invoice or per item wasn't effective until tax years beginning 1/1/16. 

In future it would be better to start a new topic of your own, or if there is a current one in progress where the OP has received an answer or solution so that a different fact pattern would not be derailing away from an OP receiving help.