W. Carlsen wrote:

- quote -

As was noted, under the capitalization rules the answer
would be no.

Now, for assets acquired by purchase that are also Section
179 qualified there's always the use of that provision to
expense assets. However, you do have to specifically
identify the property on your return and if you don't do so
the IRS can refuse to allow you to use the fact you "could
have used" Section 179 if they decide it should have been
capitalized. As well, it doesn't help if you hit the net
income limitation and won't work for certain property
(though most often that property isn't what you are talking
about <grin> ).

There's also a second out--if you read the case that will be
cited to *prove* there's no dollar limit on capitalization
(Alacare), you'll note that if you consistently follow a
policy of expensing low cost items and that doing so does
not materially misstate your income, then not only *may* you
do this but, arguably, once you've established the policy
you are *required* to do this until the IRS gives you
permission not to--it's a method of accounting under Section
446 and methods can only be changed with IRS permission,
even if the method is not a permitted one. Conversely, the
IRS can only require a change of method if the method
materially misstates income.

In Alacare's case, the problem was that, while each asset
was clearly not material to Alacare's income, the cumulative
effect of the huge number of such items that Alacare
acquired each year *did* have a material impact. The court
spends most of the opinion analyzing exactly how large that
impact would be. The practical effect is that if the amount
is large enough that you would spent much time or effort
disputing a change based on this theory in exam, that itself
might prove it's a material misstatement (after all, if it
was immaterial you really wouldn't care about the minor
adjustment <grin> ).

Reality is that everyone recognizes there are amounts that
are too small to capitalize. If you go to my firm's
storeroom, you'll find documents going back to 1965 that
have staples in them. Those staples and the papers that
make up the documents were purchased in 1965 and clearly
have been "long lived" <grin> . Nevertheless, no one
suggests that each box of staples or paper we buy should be
capitalized as a fixed asset (supply is a different issue,
but I digress <grin> ), depreciated and then each one tracked
to determine when it has been disposed and can be taken as a
1231 loss.

Finally, a number of court cases have held that
capitalization is generally not required if the asset with
one with a very short life (one year or less, generally).
Note that the staples don't pass this test <grin> .

--
Ed Zollars, CPA
Phoenix, Arizona

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- quote -

There is not minimum dollar value on depreciable items.

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As a sole-proprietor, I understand having to depreciate
items I originally purchased for personal use, later
converting them for business. However; do I still have to
depreciate items in this category that won't last a year or
have such a small fair market value? (for example $50.00 or
less) Can these items be expensed rather than depreciated?
Is there a minimum dollar value on items that must be
depreciated?

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