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:
- 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;
- 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;
- 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;
- Is a unit of property that has an acquisition cost or production cost of $200 or less; or
- 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.