Jeff Crumpley

Article Dean Dorton

The rules for Building Systems, the fourth topic in our series, clarify that a building has nine different units of property when determining if an expenditure is a capitalized improvement or a deductible expense.

The unit or property concept is the foundation for capitalization analysis.  The general rule is that all functionally interdependent components are a single unit of property.  Prior to these rules, only the building in its entirety was considered a unit of property.  Under these new rules, to determine if a building expenditure meets the improvement standard to be capitalized and depreciated over its useful life rather than a deductible expense, each of these following nine building systems are considered a unit of property:

  1. Heating, ventilation and air conditioning (HVAC) systems
  2. Plumbing systems (pipes, drains, sinks, toilets, etc.)
  3. Electrical systems (wiring, outlets, lighting fixtures, etc.)
  4. All escalators
  5. All elevators
  6. Fire protection and alarm systems (sensing devices, computer controls, sprinkler heads, etc.)
  7. Security systems (window and door locks, security cameras, recorder, monitors, motion detectors, etc.)
  8. Gas distribution systems
  9. Other structural components (roof, walls, floors, etc.)

What this means to you:  Through the Building Systems rules, building expenditures are analyzed as a part of one of the nine building systems, rather than the entire building, to determine if a capitalized improvement or a deductible expense exists.

If you would like additional information or have any questions, please contact Faith Crump (fcrump@deandortonstg.wpenginepowered.com) or Jeff Crumpley (jcrumpley@deandortonstg.wpenginepowered.com).

View Faith Crump’s Bio

Article Dean Dorton

The rules for Materials and Supplies, the third topic in our series, define materials and supplies to include items costing $200 or less.

These rules require non-incidental items to be capitalized and deducted when used or consumed, not necessarily in the year acquired.  Items are considered non-incidental if an inventory or record of consumption is maintained.  Items that are incidental (not inventoried or tracked) are to be deducted when paid or incurred if the item is one of the following:

  1. Is a component acquired to maintain, repair, or improve a unit of tangible property, that you own, lease or service and that is not acquired as part of any single unit of property, including rotable and temporary spare parts (rotables) and standby emergency spare parts;
  2. Consists of fuel, lubricants, water and similar items that you reasonably expect to  consume in 12 months or less, beginning when first used in your  operations;
  3. Is a unit of property than has an economic useful life of 12 months or less, beginning when first used or consumed in your operations;
  4. Is a unit of property that has an acquisition cost or production cost of $200 or less; or
  5. Is identified in published guidance (such as the Federal Register or in the Internal Revenue Bulletin) as materials and supplies.

What this means to you:  Through the Material and Supplies rules, incidental items meeting the above-mentioned criteria may accelerate your deductions by expensing items in the current year, rather than electing to capitalize them and depreciating over the useful life.

If you would like additional information or have any questions, please contact Jeff Crumpley (jcrumpley@deandortonstg.wpenginepowered.com) or Faith Crump (fcrump@deandortonstg.wpenginepowered.com).

View Faith Crump’s Bio