Capitalize or Expense Truck Repairs
Trucking companies are routinely faced with repairs and maintenance expenses on their equipment. The tax implications of these expenses are whether they are expensed immediately or must be capitalized and depreciated over the course of the asset’s useful life.
Famous tax court cases such as Lasalle Trucking Co. v. Commissioner provide guidance as to the type and nature of the repairs & maintenance expense and aid in determining the capitalization of these costs.
The cardinal rule is costs must be capitalized to the extent they materially add to the value of, substantially prolong the useful life of, or adapt the airframe to a new or different use. In addition, costs incurred as part of a plan of rehabilitation, modernization, or improvement must be capitalized. Common examples of capitalization of costs are rebuilding of engines, tanks and cabs on tractors, and rebuilding of trailer beds, boxes and frames is a common practice in the trucking industry.
See the chart below that is an aid for either Capital or Repair expenses:
|Improvements that “put” property in a better operating condition||Improvements that “keep” property in efficient operating condition|
|Restores the property to a “like new” condition||Restores the property to its previous condition|
|Addition of new or replacement components or material sub-components to property||Protects the underlying property through routine maintenance|
|Addition of upgrades or modifications to property||Incidental Repair to property|
|Enhances the value of the property in the nature of a betterment|
|Extends the useful life of the property|
|Improves the efficiency of the property|
|Improves the quality of the property|
|Increases the strength of the property|
|Increases the capacity of the property|
|Ameliorates a material condition or defect|
|Adapts the property to a new use|
|Plan of Rehabilitation Doctrine|
If you would like to discuss this or any other U.S. tax or accounting matter, please feel free to call Gabriel at 773.269.6513 or email Gabriel.firstname.lastname@example.org.
We look forward to hearing from you.
Gabriel Wise, CPA MST
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