To Repair or Capitalize, 2017 Style

June 6, 2017 by Mark Battersby

Every mobile entertainment business owner/ operator faces the nagging question: When is a repair really a capital expenditure? Properly classifying repair, maintenance and improvement expenses is important because improvements to business property usually must be depreciated over many years — as many as 39 years for some business property. On the other hand, no matter how much they cost, repairs to business property are currently deductible in a single year.

If, for example, a mobile entertainment business spends $1,000 to repair a business vehicle, it can deduct the entire amount in one year. However, if the $1,000 amount is to improve the vehicle it must be deducted a little at a time over five years. Obviously, it is preferable for an expenditure to be classified as a repair rather than an improvement so the entire amount can be deducted in one year.

Code Section 263(a) of our tax law requires all amounts paid to acquire, produce or improve tangible property to be capitalized and recovered via depreciation deductions. Alternatively, Section 162(a) allows all “ordinary and necessary” business expenses incurred during the taxable year, including the cost of supplies, repairs and maintenance to be immediately written off.

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Mark Battersby Mark Battersby (5 Posts)

Filed Under: 2017, Mobile DJ Business