Capitalization Exception - Materials and Supplies

[Eric Williams]

Per Indopco, capitalization is the norm, while deductions are the exception.

In other words, instead of asking do I have to capitalize this, ask, what Code section provides an exception to capitalization.

One such method can be found in the intangible regs of §1.162-3(a)(1), and §1.162-3(a)(2). 

Under these regs amounts paid or incurred for materials and supplies after 1/1/14 are deductible when purchased if the materials and supplies are incidental, and deductible when used or consumed if non-incidental.

Incidental materials and supplies are those that are carried on hand and which no record of physical consumption is kept, no beginning or ending inventories taken.

For purposes of 1.162-3, materials and supplies are defined as tangible property used or consumed in the taxpayer's operations that is not inventory and that is/are:

1) spare parts

2) fuel, lubricants, water, etc., expected to be consumed in 12 months or less

3) a unit of property having an economic useful life less than 12 months

4) acquisition/production costs less than $200

5) various other types

Take advantage of all the methods for immediate deduction without the need for cost segs.