Ainer & Fraker, LLP: When taxpayers buy new equipment for businesses purposes, the following question arises: “Can they separate the sales tax from the purchase price and deduct that separately as a currently deductible tax expense?”
Unfortunately, you are required to include all the costs of acquiring the equipment into the depreciable basis, including the sales tax.
Whenever property is purchased for business use in a business and that property has a useful life of more than one year, its cost must be deducted over its useful life. This accounting procedure is referred to as depreciation. The number of years the property must be depreciated is largely dependent upon the type of property it is. However, there are exceptions to the depreciation requirement:
- Tax regulations include a rule allowing you to disregard the depreciation requirements for property for which the cost is less than $100. This may seem very low, but while many other tax values are periodically adjusted for inflation, this value has not changed for well over 20 years.
- The tax code contains a special provision that allows certain types of property to be expensed (deducted in year of purchase) rather than being depreciated. This provision is commonly referred to as Section 179 expensing and is limited to a maximum annual amount is inflation adjusted annually. The Section 179 deduction only applies to tangible personal property such as tools, office equipment, machinery, etc. and does not apply to real estate. There are some other restrictions as well, so be sure to contact this office for additional details.
Sometimes, even repairs may have to be depreciated. If a repair or replacement increases the value of the property, makes it more useful, or lengthens its life, then it must depreciated. If not, it can be deducted like any other business expense.